Reaction to VC’s Are Not Your Friends

Matt Harris —  February 3, 2011 — 10 Comments

First, read this post.

A couple of my close friends, Mark Solon and Roger Ehrenberg, have tweeted this article with the endorsement MUST READ. I’m as much (or more) of a fanboy of Steve Blank as anyone, and I think the world needs more straight talk and demystification of the VC/entrepreneur relationship. Having said that, this seems like such an obvious point that to make it feels more like sloppy demonization than analysis. By these lights, customers are not your friends, partners are not your friends, employees are not your friends and your lawyer isn’t your friend (even if it’s Ed Zimmerman and he’s gotten you drunk on $350 bottles of wine.) If you are expecting someone, in a business context, to do something against their own fiduciary duty and self-interest, then you are in for a rough ride in this world, whether you raise venture capital or not.

Mark and Roger, you are both colleagues and friends. If I have a company in trouble (which I never do, of course), can I count on you to lead their next round at an uptick, based on our friendship? NO? Well, hot damn, I thought we were friends.

10 responses to Reaction to VC’s Are Not Your Friends

  1. Something tells me that the understanding of the dynamics between various business partners you have is greater than that of some late teen – early twenties, overly optimistic, computer programmer with a great idea.

    What I’m saying is I don’t think you are the intended audience of the post.

  2. I very much agree. That post was over the top.

    I am fortunate to consider my investors (including Mark) friends of mine. But I wouldn’t expect any friend of mine to continue investing in what they saw as a poor investment whether or not it happened to be my company. That’s not friendship.

    I think it’s very possible to be friends with your investors and for that relationship to endure whatever outcome your business takes (though Mark, George, Chris, et al: ours is going to be a great outcome 😉 ).

    • you said it better than i did. i guess that’s the real reason it kind of ticked me off … i *am* friends with most all of the entrepreneurs i back. the idea that friendship means that you do dumb and uneconomic things is what i find offensive.

  3. Matt, my friend,

    From my perspective what Steve wrote was educational and, as Tac said, targeted at a different audience. What seems obvious to you may not be obvious to all. As a venture investor I am not at all offended by what Steve said. I do consider myself to be friends with almost of all of the entrepreneurs I back, but that is clearly separate from how an investment relationship is managed. Do some entrepreneurs who are less experienced and perhaps less disciplined in their thinking confuse friendship with support? I’d be willing to bet the answer is yes, and yes a meaningful percentage of the time. Why you are “ticked off” is curious to me, as you, of almost all investors I know, combine friendship with economic discipline and transparency of thought better than anyone.

    Nice to see you communicating your ire. Keep it coming!

    • I guess it was the headline: VC’s are not your friends. From your reply, I can see that you disagree with him on the face of it; you say you are friends with almost all of the entrepreneurs you back, and in some cases I know that to be an understatement. Frankly, I feel that backing well known (and in some cases beloved) “friends” is smart, and also that building friendships post-investment is vital, as you know. So we agree that his title is misleading at best, and (in my view) link bait slander at worst. I think the argument that it is for a naive population is unfair to entrepreneurs (who I think generally can figure shit out pretty well) and, regardless, actually compounds the error … who worse to deliver a misleading message to than a naive audience?

      His argument, I think, should go like this: You will become friends with your VC’s, at least the good ones, if you are not already at time of funding. You will go to war with them by your side, and you will all work hard in the pursuit of your aligned interests. Should small things come up, or even some large things, where you need an accommodation from them (some more options, a raise, the ability to take some money off the table, etc), if you present a reasoned case and are doing a good job, they will probably act against their short term best interest and help. Having said that, and (critically) DESPITE the fact that they are good and loyal friends, if you need them to breach their fiduciary duty to their investors, they will not do so.

  4. Gotta agree with Roger here. While this might seem obvious to those with a good deal of experience, I think this is a good thing for a young venture-backed CEO or someone thinking about raising venture capital to read. I do consider guys like Toby (comment above) to be a very close friend and (as you know) often have portfolio CEOs stay at my house when visiting. I think it’s our job as VCs to make sure that not only do all of the CEOs we back understand that we take our fiduciary responsibilities seriously, but that it’s articulated thoughtfully and well in advance of any financing.

    I think Steve’s VCs failed him by springing the news so close to a subsequent financing. In our shop (as I know in yours too), we try and make it a practice to bring in CEOs to meet with all four partners when there’s six months of cash left so we can explore with them financing strategy and whether we’ll be a part of that.

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