Your investors will misunderstand your business and that's okay
The denouement following a long but successful fundraise can sometimes be a time of surprising disappointment for entrepreneurs. Your shiny new investors, who so impressed you with their enthusiasm for the market and their recall of obscure details about the company, start making comments that cause you to doubt whether they really understand what the hell kind of business they invested in.
“Wait, sorry, remind me again how you define ARR?” “Are you sure we need all these people in engineering?” “Who is your biggest competitor?” “I’ve never seen an all-remote sales team work out, maybe that’s a bad idea.” “Why do you customers buy your product?”
It can be like your investors earned master’s degrees during the due diligence phase and then regressed back to fifth grade by the first board meeting. What the heck?
I think the crux of the issue here comes not from investors being inherently disappointing once the gloss comes off — but rather, it has more to do with the emotional satisfaction of having someone “get us” and how we all grow to crave it.
Think about the circumstances around starting a new business venture. Most people around you don’t get it, or don’t care about it. Your mom thinks you should have stayed at Google for a few more years. Your dad is concerned about your 401k. 90% of potential employees and investors won’t take a call, and 9/10ths of remaining 10% pass on the opportunity anyways. It feels like nobody believes in you, nobody sees the opportunity that seems self-evident enough to you that you bet your whole career on it. You start wondering if you’re the crazy one.
Then… finally… a believer appears. Maybe it’s your first hire who said “I’m in” five minutes after learning about the concept. Maybe it’s that first angel investor or business mentor who cut you off mid-pitch to say “that’s enough, take my money”. Either way, it feels good. Real good.
Unfortunately, as is typical for things that feel similarly good, feeling understood is yummy and validating and unpredictable which means your brain is going to start craving it.
I can’t tell you how many times we’ve had portfolio companies say “I really want to work with XYZ firm, even if they'll only invest at a lower valuation, they just really get what we are doing.” Which is not a bad thing, by the way — a huge component of entrepreneurship is attracting true believers who want to help you. But just note and acknowledge how emotionally captivating it is for you to finally feel understood!
This craving, rather than the behavior itself, is why it’s so painful when your investors biff it up and start saying thoughtless things once the ink is dry. I mean, yeah, there are better and worse ways to kick off the post-close working relationship, and trying hard to understand a portfolio business should be table stakes efforts for a VC or PE investor. But, look, the acute annoyance of the situation really stems from the expectations we impose.
The reality is that it’s impossible for an investor to ever understand your business with anything near the fidelity that the operators do. It would actually be insulting of them to even try! Founders and operators commit a portion of their entire career to an individual business for a period of at least several years. At most, an investor is committing a fraction of his/her career, time, and attention on any one individual business at any one time. Operators have business context from actually running the company, whereas investors gain context from materials that have been prepared and summarized by the operators.
(“But they asked such great questions during diligence!” Well… yeah. During diligence all they were doing on a full-time basis was thinking about your company. What do you think they’re thinking about now?)
Investors can indeed sometimes provide insight, can sometimes “see around corners” in a way that is super strategic to the business. But N.B. that this value-add is in the form of breadth of experience (lots of experiences across a broad array of companies and markets, i.e. ‘pattern-matching’), not in the form of depth (of understanding about your company in particular).
This is such a crucial concept that first-year venture associates should be legally required to get it tattooed on their forearms. Investors should not be providing advice to entrepreneurs relying in any way on the presumption that they understand the company better than the operators do. Picture the caricature of the most annoying VC you have ever met — this is exactly what that person does! Educates you about your business!
To review. The job of investors is to provide value (beyond capital) in the form of breadth (of experiences, of network, of markets, etc), not depth. This means we have to take “getting you” off the table. It’s nice, but it’s not the job. When diligence is over, when that new car smell has faded and your board is spending most of their daytime hours hunting the newer, hotter version of where you were six months ago, try to have some patience and grace around the head-slappingly stupid questions from people like me. Accept that you’re going to have to re-educate your investors over and over again on things seem obvious. Accept that this is good — that the practice of occasionally reminding even your biggest and most financially committed supporters what the point of all this is is just part of the job of building new things. (Your VCs do this every day with their limited partners, by the way).
What you should demand that your investors “get” is that building companies is hard, brutal work with uncertain results. This is the understanding, the empathy really, that is actually important when times get tough.
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