What Makes StartupYard “Founder Friendly”
StartupYard is a member of The GAN, the Global Accelerator Network. In order to be a member (for which only a small number of accelerators qualify), you absolutely must be a “founder friendly,” investor and organization.
That sounds very nice, but most founders don’t really know what it means. It sounds like something any investor can tell you: “hey, I love founders!”
First: What Founder Friendly Does Not Mean
Last year Aaron Harris over at Y-Combinator (a notoriously founder friendly accelerator), wrote a short but sweet blog post about this. He’s talking about VCs, but much of the same applies to seed-level investors. The upshot is as follows:
Being founder friendly doesn’t mean being nice all the time. It doesn’t mean us giving you whatever you want, or acceding to every request you make. It does not mean having a cool, fun office.
It definitely does not mean doing your work for you. Sorry.
Not to be all patronizing about this, but some of those things aren’t necessarily good for you, even if you would like them. We want our startups to be challenged, and we want to bring the most value we can to them. That means our role can’t be as your helicopter parent or security blanket. We have to treat people as what they are trying to be.
The 4 keys to Founder Friendliness
I like Harris’s description of the keys to founder friendliness, so I will borrow from his list and expand it A founder friendly organization should be:
Let’s break this down a bit more to get at what each of these qualities really means. |
Honesty : Telling the Whole Truth.
We often talk to startups about the world of difference between “being accurate,” and “being clear.” In many respects, this is like the difference between “being truthful,” and “being honest.” Truthfulness, like accuracy, is critical, but honesty is a deeper quality still. Honesty as an investor is not only refraining from lies or refusing to mislead someone. It is also a commitment to making sure that founders clearly understand the truth, and have all the information they really need to make the best decision for themselves.
One of our mottos here is “it’s your company.” It’s always a founder’s responsibility to understand the difference between what an investor wants, and what they know themselves believe is best. However, an honest investor is very clear about what motivates them to give that advice. If we advocate something because it is in our interest as investors, we must be clear about that fact.
On the same token, honestly demands an investor speak up in the interest of a founder, even when the investor has no clear financial incentive to do so. This is what might drive an investor to speak up against a deal that might make them money, because it would unfairly impact the founders of the company.
Balancing your own interests and that of founders is tricky, but early stage investors simply cannot afford to look out only for themselves. Our ecosystem is just too small, and it can’t support predators.
2. Transparency: Actively Raising Awareness
Sometimes when someone tells you they are being “transparent,” what they really mean is the opposite. Simply giving someone information when they ask for it is not real transparency.
To be really founder friendly, we have to be actively transparent, meaning that we need to be informing our founders of issues that may affect them in the future, before they have to ask us. We need to be actively checking that our founders understand our decision making process, what we are doing, and why we are doing it.
One way many investors fail at transparency is actually by trying to be a bit too nice. Investors can confuse founders simply by refusing to say no, even when they have decided to pass on something.
As Riz Virk put it in Hackernews: “If a VC hasn’t given you a term sheet, or isn’t constantly following up with you about the next step to get a term sheet, then they’re not that into you.”
Unfortunately this level of transparency about an investor’s own position is common. It is easy for investors to be nice, but it is a true kindness to a founder to be transparent. An investor who can say no, and clearly state the reasons why, is of infinitely more value to you than one who can’t be bothered to tell you they’re not interested.
I know from personal experience that transparency is sometimes painful. Still, since becoming a part of StartupYard selection committee for each round about 3 years ago, I have personally given feedback on the reason for a rejection to every single founder who has asked for it.
For my trouble, I have been called names, I have been ridiculed for anything from my appearance to my nationality, and I have even been told that I will be “crushed because we will rule the world,” by one particularly disturbed would-be founder.
However, what I have overwhelmingly found despite that, is that founders benefit from the transparency, and some of them thank us and remember us well long after we have parted ways. You cannot buy that sort of good will.
3. Responsiveness: Treating Founders as Customers
The VC Fred Wilson recently wrote about starting a VC firm in the 1980s, when capital was hard to come by, and VCs were treating their investors like VIPs, catering to every need. Wilson saw the drawbacks in that approach: LP investors want returns, and returns only. He wrote:
“When we started Flatiron Partners in the mid 90s, I told my colleagues that our customers would be the entrepreneurs and that I wanted to treat our investors as our shareholders.
That was a novel idea at the time, but I have advocated for it ever since and I think it more properly captures the relationship that the best VCs have with their portfolio companies today.
Our portfolio companies are our customers.” – Fred Wilson.
StartupYard isn’t a VC, but we have a similar outlook on our relationship with our startups and investors. The investor is not the customer, and even though we don’t work for our startup founders, and they don’t pay us, we dedicate ourselves to being of use and benefit to them as much as possible.
An early stage investor just cannot afford in most cases to throw their weight around like a majority stakeholder, or a large investor in a public firm. We have an outsized influence on the development of our startups and founders, but we also have an outsize ability to run those companies off the rails if we don’t focus on understanding them, and making them work on their own terms.
This is why founder-focused mentorship and guidance is a bedrock part of StartupYard’s program. It is essential not only to be an advocate for the best ideas, but also to help our founders find the best path forward for themselves, in a way that they can be maximally effective.
Responsiveness means listening closely to what a founder says, and observing what a founder does and how he or she thinks, to try and help them focus their energies in areas where they are likely to succeed. Responsiveness means catching a founder who is banging his head against a wall, and doing something about it to get him back on the right path.
It’s not enough to simply be available when a founder asks for something, but again, to respond to what our founders do with any help they seem to need. Many is the time one of our team has spotted a problem with a startup before they’ve asked for help. So we go to them, and most of the time, they’re relieved not to feel alone in what they’re facing.
4. Consistency: Be a Rock
Sometimes the only thing a founder needs from the investor is to be a rock. Just to stand behind them when things are going poorly or amazingly well. If everything else fails and the building is on fire, your existing investors should be right next to you; not just because it’s their money, but because they chose you, and they’re sticking with the choice.
Founder friendly investors don’t come knocking only when the startup has just announced a big success. We don’t show up just for victory laps, and we shouldn’t use our successful founders merely as examples of why we are so smart.
Being with your startups in their low moments is much more important. Having a beer with the founders when they’re getting a divorce, or when they lose an investor, or when they made a big mistake: these are the ways founder friendly investors help their founders. We want to be there for the post-mortem, and we take equal share in the failures as much as the successes.
This is not just about loyalty, but about self-respect as well. An investor who owns their own decisions, and refuses to place blame for failures completely on other people is an investor with true confidence.
When I meet other investors who badmouth their failures, I cringe. They’re also badmouthing themselves. Our failures are a result of our judgement as well as the founders we invest in.
In early stage investing, and for startup founders, there is always another day. There can always be wins on the horizon, but how we deal together with our problems is how we really build strong bonds of mutual respect.