Life is just too short to work with jerks. The idiosyncratic risk of working with egomaniacs is real and sometimes unknowable after the docs have closed. Egos can take a company down. Founders can turn rogue and go their own way because of course who knows better than them how to run a business. VCs can for selfish reasons turn on a company and create such massive negative signaling risk (if they are leads or large enough on cap table) that a founding team can’t raise additional capital needed to finance their current scaling growth.
We have all experienced the time suck and wasted days of working with individuals who are more focused on themselves and their pocketbooks than helping others. And knee deep into that hoopla we remind ourselves that there were caution signs telling us to slow down and be careful. As much as we try to learn, we’re all fallen human beings and this movie will be seen again in the future.
We have a “Zero Tolerance for Egos” standard at Promus Ventures. This is not a puffery piece on our firm and “oh how are we such great people.” We are far from perfect and can always work harder for the founding teams we back, but we strive to make sure that our founders know we have their backs and will do everything to make them successful.
Our job is to 1) find the most visionary and tenacious teams to back in 2) areas where we have great passion and knowledge alongside 3) connected and likeminded VCs where ultimately 4) together we all help and selflessly give our time to build a successful and thriving company. The “together we all help” part of that run-on sentence is contingent on character, and flimsy character over the long-term produces flimsy results.
Sometimes everyone gels as a unit and the results are spectacular. It is rare to get a second chance to work with founders that performed above all expectations and exited with a terrific result for all involved. If the founders are up for another go, this tight knit group of founders and investors all opt to work again in a heartbeat, and it’s easy to see why.
At the seed stage, it is often hard for investors to spend a lot of time with founding teams to get to know them through and through, and vice versa. The perfect scenario is to get to know a team over a long period of time, checking in with them periodically to measure progress. But more often than not, the elite teams are off to the races early, and capital has found its way to them quickly as their talent shines through. Judging character/drive/tenacity has to be done in a limited window, and sometimes we get it wrong. We are fortunately far more right than wrong in working with teams of solid character.
Founders hold the keys to their companies, and they should let pass only those who have shown themselves worthy to be on their cap table. The importance of picking the right VCs cannot be overstated — they have the ability to greatly help or completely blow up your company. In the seed world, we generally like to see a handful of VC firms on the cap table in a $2–4M round, making all of them work to be in a spot to possibly lead the next larger round. Having investors who have shown they invest in seed and can lead Series A (or later) rounds is important.
Signaling risk is far greater for startups that go with one large lead VC in their seed/Series A round than having 3–5 institutional vcs capped at certain sizes in a seed round. When a lead VC chooses to stop funding completely and not support the company (just as the team has increased burn and are starting to scale into their growth), the results can be disasterous. Helpful insider investors can stick their necks out and bridge the team with risky capital but this can only go so far. The talented team ends up blowing through this bridge capital unable to find new investors that while liking the business very much are ultimately scared away by the lead walking away. “Come back to us in 6–9 months” is the common parting words from these new investors. The founders are forced to sell their company for peanuts or completely shut down, wiping out all capital for investors and nothing for themselves.
Going to the altar should be a well-thought out and disciplined decision, so pick your founders and investors (and friends) wisely. Make it a mandate not to work with narcissists or those you just don’t have a good feeling about, regardless of how much capital they will bring or their shiny record. It is almost impossible to measure lost opportunity costs in life, so try your best to work only with people that will row with you all the way through the high rapids and difficult passages of building a company.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.
