3 ways being a founder made me a worse VC

Thoughts from a man outside the arena.

I made my first professional investment two years ago, which makes this as good a time as any to reflect on what I’ve learned in my transition from founder to venture capitalist.

Let’s start with the obvious: compared with building a company, this is an easy job. As much as the loudest among us love to valorize the profession, VCs are not in the arena–we are cheering from the sidelines.

A man. Not pictured: the arena

An easy job, then, but a hard one to do well. By definition, only a minority make it to the top quartile in which the asset class starts to justify its duration and illiquidity, and it’s only in the top decile where reputations are really made.

Does founder experience make you a better investor? The data are mixed, but I think there are a few traps that former founders are much more likely to fall into. This is an essay about those traps, in the hope that writing about them will make me less likely to blunder into them in future.

Falling in love with the idea, not the founder

Occasionally, someone pitches you an idea that you just fall in love with. Maybe it addresses a longstanding problem you wish someone would address, or it perfectly fits a thesis you’ve been developing.

Regardless, this is a trap. Every time I’ve fallen more deeply in love with what a founder is building than the founder who is building it, it has generally worked out worse than cases where the opposite was true–when I’ve felt that the idea needed work, but the founder was absolutely top-tier.

That this should be the case is not surprising. Ideas are vital, but cheap and easily changed, while success rests so much on the quality and velocity of founder decision making and execution that of course that’s what matters.

I think ex-founders are especially susceptible to making this mistake because the ability to get irrationally excited about an idea is so completely ingrained that it’s hard to shake. Founders need to do this. It’s what allows you to sell a ludicrously improbable proposition to investors, to employees, to yourself.

This superpower is a liability as an investor, because it predisposes you to imagine what the best entrepreneurial version of yourself would do if you were running the company rather than pay close attention to what the founder is actually doing.

My operating framework is now much simpler: focus on finding the strongest founders who are what my friend Charles Hudson calls “in the neighborhood of a good idea”, and support them as best I can.

Bias to action

Startups are a high APM game. Action generates heat and light: you do things, and those things generate information and outcomes that help you figure out what to do next. The best founders are extremely high agency and move unreasonably fast, because they understand that doing so buys you more times to run the OODA loop before you’re out of runway.

These instincts are incredibly valuable for a founder. For investors, a bias to inaction serves us better most of the time.¹ Founders have to make a lot of decisions, but most of those decisions are relatively low stakes and reversible. You can roll back a bad feature, or part ways with a hire that’s not working out.

Investing, by contrast, is a fundamentally low APM activity. The job more closely resembles what Jeff Bezos describes as the role of a senior executive: you get paid to make a small number of high-quality decisions. What’s worse, you make the most consequential and irreversible decision (whether to invest) first!

More time usually means more information about the founder, the company and its general trajectory. Bad VCs are notorious for substituting social proof for their own judgment, but that’s not always what’s going on–the truth is, you can often learn more by waiting than by moving quickly.

Since I learned to channel my bias to action into the work of building our firm rather than our investing, the quality of our decision making has gotten better.

Moving from benevolent despot to coach

As a founder, everything is your fault. The corollary to this is that you can and should do and say whatever is necessary to fix what is broken, and quickly. In startups, there is no time to get buy in from key stakeholders. Sometimes you have to make the decision, dictate the choice and live with the consequences.

I’ve never served on the board of a company I didn’t start, so perhaps things are different for VCs who hold board seats, but from my vantage point at our little fund, we are nowhere close to being in charge of anything once we’ve written a check.

This is a hard dynamic to adapt to after a couple of decades doing everything your way. While some founders thrive on direct feedback, very few like being told what to do (nor should they!). It’s their company and they have more context than you.

I have found being a coach instead of the boss to be a difficult transition. The only thing that seems to have helped is getting much better at asking the questions that lead to what you hope is the right conclusion.

Ultimately though, investors are involved, but founders are committed. The best VCs I know recognize this fundamental asymmetry and approach their role with appropriate humility. Two years in, I'm still unlearning founder habits and rebuilding these muscles. If the sidelines have taught me anything, it's that knowing what play to call is far easier than having the wisdom to keep quiet.

1. Sometimes a raise is so competitive and moving so quickly that speed is required, usually with a deleterious effect to decision quality.