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Finding “Founder <> Investor Fit”
Cheerleaders vs. Trainers
Unquestionably, 2020 was a jarring year for startups.
Whether you are a company dismantled by COVID or resilient to its impact, it affected your organization and placed undue strain on the founders of the company. Founders have had to not only worry about the viability and growth of their companies, but the health of their employees and the welfare of their own families. We know this has not been an easy time for everyone.
Times like these are often when founder <> investor relationships truly define themselves. I’ve seen VCs provide unequivocal support for the founders, cheering them on both publicly and privately and others roll up their sleeves, take on hands-on roles in companies and help founders make the tough (and sometimes unpopular) decisions. Neither is wrong, but it’s important to founders to understand the type of VCs they have around the table. I generally refer to these two types of VC profiles as “Cheerleaders” and “Trainers.”
“Cheerleaders” are VCs that are there to support you any way they can. They will promote your fundraise announcements, product launches and hiring posts. They are there for you to ideate and (at times) vent, but are decidedly hands-off. Cheerleaders are great at connecting founders with other investors, potential hires and fostering a sense of community. Cheerleaders will support the founder through good times and bad are happy to go down with the ship should that be the case.
“Trainers” are different. Trainers are there to push you. They are there to help make you and the company become the best versions of themselves. They will get operationally involved with various aspects of the company and will (at times) be the investors that you vent about to your Cheerleaders. Trainers will tell you when you’ve made mistakes and are there to help you make the tough and sometimes unpopular decisions. Ultimately, the best trainers want to help you maximize the value of the company, but they may implore you to do the operational equivalent of drinking kale smoothies and doing sit-ups to get there.
These models aren’t necessarily in opposition with each other, but as startup social media (#VCTwitter) and syndication (splitting rounds across numerous investors) have grown, I’ve seen the divide between these two camps grow in tandem. More important than the type of investor profile is the quality and intentions of the investor. It’s important to know what to expect out of your investors and to know what you want. Do you want active investors or passive investors? Do you want hands-on operational support or do you favor broader promotion and community? These aren’t conflicting ideals, but knowing what you want from your investor is a large part of making sure you and your investors are aligned with expectations.
Both types of investors have risk. A low-quality, maligned “trainer” may indeed be the worst possible investor. They can be disruptive to your business and/or become a constant distraction without producing results. That said, the risk of “cheerleaders” is that you miss fairly obvious (and avoidable) obstacles / risks because your investor doesn’t want to push back on you. I’ve seen both of these in my career with unfit “trainers” meddling with companies in incredibly unproductive ways, as well as fair-weather “cheerleaders” publicly cheering on CEOs as they privately criticized the companies and watched them sink down the drain.
The biggest risk is not knowing who you have around the table. Ask investors how they are typically involved in companies and diligence them with companies they’ve previously worked with. While certain firm dynamics will anchor investors to certain ranges on this spectrum (lead investors generally orient more to “trainer” than “cheerleader,” with syndicate investors generally the opposite), individuals will operate differently, so make sure to diligence not just the firm but the investor. For what it’s worth, we frequently introduce a company to several of our founders through our investment process.
Personally, I’m a trainer. I LOVE working with founders (it’s why I’m in this business) and my social media presence isn’t significant enough to matter as a cheerleader. For founders that I work with, I make it explicit upfront and it’s always one of the questions I ask before submitting a term sheet. My favorite response to-date belongs to a founder that we began working with last year. When asked the question, “Do you want someone who is more of a supportive cheerleader or an active personal trainer?” the founder responded “ if you aren’t pushing us to be better, why are you here? ‘Barry’s Bootcamp’ my ass.” (I wrote about this in our recent announcement of ThreeFlow)
Investor <> Founder fit is a hugely important and underrated consideration in venture dynamics. I personally love working closely alongside founders which is why our strategy is so concentrated (we do 4–6 deals per year and often communicate with each of my founders nearly every day). This has largely worked for me and the founders I work with, but certainly won’t work for all, so make sure to look inward to identify what type of investor profile you want and to set expectations with those investors out of the gate.