VC Cliché of the Week

When you are driving the car, nothing is more frustrating than a back seat driver telling you what to do. It gets inside your head, makes you crazy.

Same is true of venture investing. VCs have a tendency to be back seat drivers. We like to tell the people running the companies we invest in how to do their jobs. It's particularly true of VCs who have been operating execs before becoming VCs.

I remember the day my co-founder of Flatiron, Jerry Colonna, came back from a board meeting in Boston and told me about a conversation he had with one of his co-investors. Jerry had been a very good operating exec before becoming a VC. His co-investor told him that you either run companies or invest in them, but never to try to do both. Jerry took it to heart and became a great investor and advisor to the companies he worked with.

I was on the board of a company that will go nameless with a VC who will also go nameless who before becoming a VC had been a very sucessful entrepreneur and operating exec. He was constantly back seat driving and it drove the CEO crazy. The CEO would present a sales comp plan and the VC would tell him that he was doing it all wrong. Stuff like that. If I was the CEO, I would have been very tempted to hand him the keys to the car and tell him to drive it if he was so eager to do it.

Don't get me wrong, I care intensely about the companies we invest in and am always obsessing about how they can do better. But I try like hell not to back seat drive.

It's a lot about how you say things, not what you say. The most important thing is to advise not direct. Ordering entrepreneurs around won't work. If they wanted to take orders, they'd be working at some big company taking orders from someone else. It's also critical to soft pedal the advice. Coming from an investor, it's going to have an impact anyway, so I find it best to say something like, "have you thought about", as opposed to "that's not the way to do it".

I've learned all of this the hard way. By doing it wrong and paying the price.

Jerry's co-investor had it right. You can either invest in companies or run them. But you can't do both.

Comments

[howard Lindzon]

Wish I had read this last week.

[Minic]

Driving home last night from dinner outside, my kids suddenly turned back seat drivers. I hit the break hard, stepped out of the car... and walk home leisurely. My wife drove the car home. By the way, it was actually a short walk.

[Derek Scruggs]

Good that you noted how soft pedalling is often the best approach. A truism I learned in sales training is that "a prospect will defend his bad decision to the death if you're the one who pointsa it out to him." Even if the unnamed investor is 100% right and the CEO 100% wrong, the psychological dynamic of telling someone they're wrong often hurts the relationship. The ideal situation (as many wives know) is to get the CEO to come around to your way of thinking, but doing it in such a way that he thinks it was his idea to begin with.

[howard lindzon]

Derek - excelent point

[R]

Ideally, both the VC and Entrepreneur are able to have their assumptions questioned without catching feelings.

The back-seat driving scenario reminds me of this article re: Strong Opinions Weakly Held:

http://bobsutton.typepad.com/my_weblog/2006/07/strong_opinions.html

[Jim Eiden]

This is really one of the topics that is rarely discussed. VC's say that they not only provide financial resources, but serve as mentors, guides, and advisors.

But the mentoring, advising, and guiding aspect never gets talked about. When I was a correspondent for The May Report (http://www.themayreport.com), I would interview entrepreneurs and VC's. This was a side job for me and I attended many a high-tech happy hour during the dotcom glory days.

Funny thing is that what I asked about the kind of advice the VC's gave to their invested companies, I got very evasive answers from both the VC's and the entrepreneurs. I know a lot of the VC's had no functional or domain experience in the companies they were investing in. If it was a B2B, the investors had no middle-man or industry experience, so how could they provide that type of advice.

No wonder more than 90% of these firms went under.

Glad to read that a VC actually talks about these types of things. That we can actually learn from them.

[Charlie Kemper]

Right on. These are truly words of wisdom. I would even take a step further and add that as a Board Member it's important to know how to coach & guide while keeping a CEO upbeat about what he/she has already accomplished. Obviously, this is Management 101, but I've found several VC's and Board Members who tend to forget the basics of management & motivation. No matter how good the CEO, people are people and they need to be treated with respect & recognition.

[Jeff Clavier]

Had that person become a VC recently ? It sounds like a trait of someone who switched roles not long enough to realize that being a VC is all but an operating job.

The "sister" trait is to invest in a company that looks like one you have been successful at building in the past... and see it fail, because you invested on the premise of what you could do with the business, not the team's ability to lead it.

I did the latter - amongst the screw ups I have had as a VC.