The Business of Other People's Dreams
The role of a venture capitalist is to make the founder's ambition their own, to be inspired by the founder's vision for the future.
You make your founder's conviction your responsibility. You make their dreams your aspirations.
This is much harder than it looks.
It's easy to commit to a hot company whose round is coming together fast. But building enough alignment (and even a bit of sunk cost) to make the commitment enduring is something that requires deeper thought. The good news is that the information you need to make a decision becomes apparent after two meetings. The rest is up to you.
I see three commitments as the prerequisites for a successful founder-investor relationship. These are conviction, affinity, and incentives.
Conviction is nonnegotiable. Do you feel excited about what the founder is building? Are you in awe of the possibilities and the new world it may bring about? Like Caesar marching alongside his men, swimming across rivers, and grabbing the necks of his retreating soldiers and forcing them back into battle, you must stand in solidarity with the founder and their ambitions. But in this case, you are the soldier, ideally a marshal, who stands by them. The ambition of the founder will be hard to match as an investor, but you must try.
Affinity matters most in the first interaction. Do you like the founder, and are you willing to work with them when the initial excitement wears off? Does the engagement feel good or forced and exhausting? As Don Valentine said, some of the most brilliant founders will be difficult to work with (Steve Jobs) as they prioritize their own vision above all else. But first impressions matter. If the rapport is not set in the beginning, you question the commitment in the first place. With a bad first impression, in the best-case scenario, you would be working with an adversary you've learned to work with. With a great first impression, in the worst-case scenario, you are going through a passing disagreement with a friend whom you truly care about.
Incentives are something you need to hold yourself accountable for. Are your incentives aligned for you to go to bat for a founder (time, capital)? Additionally, what can you realistically bring and how much time can you put in? Follow through on your promise and admit when you have failed. Communication should err on the side of more rather than less. But make sure that your incentives are aligned when you invest so that you don't feel forced to go to bat for your founder. You should feel that your success equates to that of the founder, and vice versa.
In a way, these commitments are reminiscent of the role of a Hollywood agent.
The actor acts, the founder builds. Agents and investors help coordinate and create the conditions for success.
As Mike Ovitz of CAA put it, "Our thesis from day one was that we would take clients' dreams and put the projects together."
This scene from Entourage captures the essence of what a great agent—and investor—should be:
Every studio in town wants a meeting with Vince, but Ari wants to take only one. He pulls out Lost in the Clouds, the book E slipped him a year earlier, and reveals it's on a fast track at a studio run by Dana Gordon, the executive he once got fired. In the same breath, he has already lined up a profile with Elvis Mitchell for Interview magazine and drinks at the Beverly Wilshire. Vince's reply: "Get us a payday, Ari."
- Remember and follow up: Ari never forgot the book E gave him a year earlier.
- Create opportunities: Ari identifies the movie opportunity, navigates the relationships, and arranges publicity without being asked.
- Enthusiasm and humor: Ari brings genuine excitement, enthusiasm, and humor.
Once you become an investor, you need to pull out the rolodex to help out your founders. Founders bring on investors precisely to increase their chance of success; by bringing in people who are willing to do what the founder would do in their position, to be shameless in asking for favors and requests. There is no shame because for the founders, their entire life depends on it.
Relationships take time and effort to build. The same goes for a founder-investor relationship. It begins with the investor noticing small things. He can't help but think about his conversation with the founder while he's on a walk. On a run, new ideas surface from his subconscious. Perhaps these are solutions to the problems that the founder shared with him. Naturally, he starts extending his mind for the founder. Some thoughts are great and refined. Others are wacky, but the relationship becomes one where you share even the wildest thoughts, even if there's a risk that you come off as crazy. You do it because there's trust. It's precisely at this point where the lines blur between investing in a founder and being invested in a founder. And that's a beautiful transition that we should all aim for.