I often find when I’m writing about the challenges or dysfunctions of a situation that I struggle to communicate about the dysfunction itself without making my words feel personal to the people who are in the middle of it. I try to write about problems and challenges clearly enough to make them easier to tackle. As a result, my prose has sharp edges. Sometimes those edges cut when I don’t intend them to.
While I haven’t yet received any negative feedback on my recent VC culture post, some of the positive comments have seemed a bit off from what I intended to communicate. The main point of that post is VCs are humans working under constraints and success conditions that they have to adapt to. If, as a founder, you’re struggling to understand the responses you’re getting from the VCs you’re talking to, then start by trying to understand their particular business and culture first. That often explains a lot. Most of the time, you’re not crazy and they’re not bad people. Structural and cultural factors are at work.
For today’s post, I’d like to write about some of the VCs who were kind to us. If you are a founder raising money in the venture world for the first time, you will need kindness. At Argos, despite our ultimate inability to raise the money we needed to keep the company going, we were lucky to receive support and guidance from multiple VCs. I’ll write about a few that were particularly kind in illustrative ways. And because it can be hard to recognize kindness for what it was in the thick of things, I’ll do my best to unpack the signs of it for first-time founders reading this.
Kindness is contextual
VCs are always short on two things they desperately need to succeed: time and information. They always have to hear as many pitches as possible because most of the companies that pitch them will not be good investments for them. They’re also making investment bets in an environment where they don’t have a lot of the information that would help them judge how likely a company is to succeed. (And the earlier the company is in its growth, the less information the VCs can gather.) These two problems—lack of time and lack of information—feed each other. Because VCs have less time, they have less time to listen to any individual entrepreneur. Because they don’t have time to explore prospective investments in more depth, their risk of missing some critical detail is higher. All of this adds up to risk. VCs live or die based on whether they make more money than they lose across their portfolio. If they fail to do so, then nobody gives them more money to invest. They go out of business.
For example, when a VC chooses to tell a founder “not yet,” that is often a move to address the lack of time and lack of information problems. The longer a start-up survives and the more concrete success it can demonstrate, the lower the risk to the investor by providing more information about the company’s prospects and more time to understand how the company works. Saying “not yet” preserves their optionality.
In that context, VCs give up something valuable to them whenever they give up time or optionality to help you out. That is kindness in their world.
A “no” is a kindness
A VC who gives you an honest “no” is giving up optionality. You are less likely to keep coming to them, giving them updates, and inviting them in. Of course, they can always change their minds later. But their chances are lower because you’re not focused on keeping them up-to-date and they don’t know if you’ll react badly to their honest answer. They have something to lose by offering a clear “no.” The founder, on the other hand, gains clarity. One of your problems as a founder is knowing whose money to chase. As painful as it is to hear, an honest “no” is far better for you than a “not yet” that really means “probably not, but I’ll keep you coming back just in case.” I will always be grateful to every single investor who told us “no” rather than choosing to slowly fade away on us.
A clear “no” with a reason you can make sense of is better. Even the guy who told us he wouldn’t invest in us because we were too old did us a favor. Once the quiet part had been said out loud, both sides agreed that there wasn’t a good fit. We didn’t waste energy trying to change his mind or wondering what went wrong.
One VC who was particularly kind to us started our relationship with a clear “no.” He has two funds and the way he describes them is almost like hearing mutual fund prospectuses. Each fund has clear parameters that we didn’t fit. It wasn’t personal. It had nothing to do with whether our company had merit. We just fell outside the investment parameters for the funds he had. (Unsurprisingly, he’s an East Coast investor with a background in banking.) By defining an investment discipline crisply, sticking to it, and making it public and understandable, that particular VC gave up significant optionality. It wasn’t all about kindness, of course; having a crisp investment discipline often leads to better investment success and less time wasted evaluating potential investments that don’t fit. But he chooses to implement his strategy in a way that is kind to founders. Once we got “no” out of the way, we were able to have a conversation. (More on the kindness of offering time in a bit.)
A “not yet” is a type of “no” that can be delivered with more or less clarity and kindness. One of my favorite VCs (and favorite humans) told us, “We’ve learned that we’re no good at investing in companies with less than $X in revenues. We’ve made exceptions in the past and have gotten burned every time. So we just don’t do it anymore. Ever. We like you. We’d like to check in with you every couple of months. But we can’t invest in you until you hit that milestone.” As with the previous example, this VC helped us to understand her firm’s investment requirements. We knew whether we would have a chance in the future, what we’d need to achieve in order to earn that chance, and how to communicate with the firm.
The kindest “no” of all is the one that comes at a personal emotional cost to the person delivering it. As I wrote in my last post, I don’t think I could thrive at a job where I had to turn down 95% of the entrepreneurs who come seeking my help on a project they have thrown their entire selves into. You have to protect yourself emotionally to do that job well. Keep your shields up. So VCs who offer you genuine, heartfelt regret that you can see in their eyes or hear in their voices are truly offering something of themselves to you. When one party feels pained from a failed deal, it’s a transaction. When both parties feel pained, it’s a relationship. You’re sharing a moment of grief. I have all the time in the world for investors who gave us the precious gift of a regretful “no.”
Time is a kindness
I mentioned earlier that our relationship with one VC started with a “no.” (That’s not quite accurate, since we knew him before, but we weren’t close.) Once we got “no” out of the way, the rest of the first hour-long conversation was him giving us advice. Good, clear, honest advice. He ended the call by saying, “Call me whenever you need to.” We did. He never failed to answer. Promptly. There was no talk of investment in Argos for him. I suppose he hoped we’d eventually reach the point where we fit his parameters, but that wasn’t going to happen any time soon. His time and advice were pure kindness. And given that time is a scarce commodity in his world, it was no small gift. I can think of a few investors who said “no” to us for whom I would do just about anything. He’s one of them.
Likewise, an introduction is a kindness. A VC who isn’t investing in you but is introducing you to VCs who might is expending reputational capital on your behalf. Their network is essential to them. Of course, as with most things humans do, humaneness and self-interest can mix. A good introduction that leads to you getting an investment from another VC earns the person who introduced you credit with both parties.
That’s OK. Kindness is an evolutionary adaptation. You don’t have to discount the kind part because it’s mixed with self-interest. Or condescension. Or something else you don’t like. Be smart, but take the win. It’s hard. I failed at it sometimes. But it’s worth practicing gratitude in the face of difficulty.
Early investment is a tremendous kindness
If you’re a first-time founder of an early-stage company with little or no revenue, then your early investors are essentially betting on you. A great entrepreneur with a flawed plan can often figure out how to fix it. (One could argue that the ability to fix an inevitably flawed plan is the definition of a great entrepreneur.) A weak entrepreneur with a great idea has a much higher probability of failure. An early investment in a first-time entrepreneur is, as Kierkegaard put it, a leap of faith in fear and trembling. It is very nearly a pure expression of belief in you in the face of enormous unknowns and improbabilities.
Don’t take that for granted. Ever.
At Argos, we were blessed to have tremendous investors who believed in us. They made time for us. They made connections. They offered advice. We had a couple of institutional investors. We’ll always be grateful for the incredible support of the good folks at WGU Labs and the Herculean efforts of our close friends inside Carnegie Mellon University. A lot of our money came from individual Angels, many of whom we know well. Friends. Colleagues. Mentors. In some cases, we went to them for advice first and they ended up offering us money. Their own money.
Every one of them lost their investment.
And still, even as that became clear, we received nothing but support and kindness from them. During the last throes as Curtiss and I played out the longest of long shots, one particularly close friend who had invested in us heavily told us, “Boys, it’s time for the test pilots to eject from the plane. I’ve already accepted that I’m going to lose my money. I don’t want to lose my two friends as well. Take care of your health and your families.”
I have no words for that.
Look for the helpers
I suppose it’s obvious that writing these posts is therapeutic for me. (I have been in therapy for about 18 years. Luckily, the cost of hosting my therapist on WordPress is fairly low.) Co-founding a start-up is one of the hardest things I’ve ever done. Having that start-up fail…well…it sucks. Having a start-up that was working as a business fail to raise the money needed to buy time to extend that success is an experience I’m going to be processing for a long time.
I could write more about the flaws of the venture capital machine. Eventually, I may do that. Eventually. Maybe. The edges would be too sharp if I were to try today. For now, I choose to make time to appreciate the humans. If you’re a first-time founder reading this, I recommend that you cultivate a habit of doing the same.
Relatedly, I offer my deepest, most heartfelt thanks to the many friends and followers of Argos who are not investors and have offered support, encouragement, and condolences. The outpouring of goodwill has been far beyond anything I could have imagined. It means a lot to every one of us on the Argos team.