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The world of venture capital (VC) has long been characterized by a tight-knit and somewhat private community. Founders typically maintain a low profile about what goes on behind closed doors because of their financial dependence on the investor community.
Without direct contact and day-to-day interaction with investors and founders, it can be difficult to understand the dynamics within this community. Over the past two years, my increased involvement in the VC community has revealed both admirable individuals and worrying trends that directly impact founders.
In the venture capital space, there are some VCs who wholeheartedly support founders, while others exhibit behaviors that can hinder an entrepreneur’s success. Despite the common desire of all stakeholders for optimal business performance, founders and venture capitalists can sometimes suffer from misaligned incentives. Investors may have an intelligent intention to support founders, but founders may not be comfortable with what is and isn’t working in the founder-investor relationship. There are challenges in fostering an environment that encourages openness.
Based on my expertise as a business psychologist, I have observed founders negatively impacting their finances by managing investor relationships at the expense of their business. My aim is to highlight these observed issues and encourage VCs to reflect on their actions. Projecting emotional or mental health issues onto invested founders not only jeopardizes financial returns, but also compounds challenges for entrepreneurs already facing significant obstacles.
Related: 5 Tips for Successful Entrepreneur-Investor Relationships
Three common dysfunctional VC archetypes emerge
1. Bully:
The Bully archetype in the VC world often starts out as an investor with a charismatic and supportive demeanor. However, this façade changes as soon as the ink on the contract dries. These VCs may lack substantial managerial experience as a CEO and may impose their subjective opinions on what it takes to be a successful CEO. Criticism often targets the founder’s decisions, sometimes calling into question the founder’s character, and suggesting that the founder is unfit for the role or shirking his fiduciary duties.
Bullies intentionally employ vague strategic advice to create ambiguity and increase the likelihood of failure. This lack of clarity allows bullies to seize the opportunity to point out the founder’s supposed incompetence, negatively impacting the founder’s self-esteem and decision-making. The unpredictable nature of these interactions with VCs further fosters unhealthy founder-investor relationships.
A snapshot of the bully archetype:
Qualifications: Lack of operational experience. Emotional instability. Create a “gotcha” scenario
Impact: It hurts the founder’s self-esteem. Insecure attachment.Founder-Investor Relationship Leads to Lack of Trust
2. Dad:
The dad archetype is characterized by a patronizing attitude and a hero complex. These investors use their initial belief in the founder as a tool of manipulation, reminding the founder of their unwavering support. This dynamic can lead to a violation of professional boundaries, with investors providing unsolicited advice. The fragile egos of dad investors are exposed, and the need for continued validation from founders to maintain perceived relevance and importance is revealed. This emotional dependence distracts founders from their primary responsibilities, creates power imbalances, and negatively impacts business success.
A snapshot of the Daddy archetype:
Qualities: anxiety.manipulative; violation of professional boundaries
Impact: A power imbalance arises because founders may find it difficult to assert independence or make decisions without the continued approval of daddy investors.
3. Nervous people:
The neurotic archetype often enters the VC community through family and friend connections, with a potential lack of resilience to the roller coaster of startup life. These VCs may have great intelligence and educational backgrounds, but they struggle to withstand the inevitable ups and downs of the startup ecosystem. Unable to overcome challenges, they encourage hyper-involvement in their portfolio companies and demand regular updates on performance. This behavior is caused by a lack of strong will to work and leads to psychological reliance on the founder during difficult times.
Although their intentions may be well-founded, neurotic archetypes need to develop greater resilience. Seeking outside support to manage concerns about portfolio performance, rather than emotionally dumping founders, is critical to maintaining a healthy investor-founder relationship.
A snapshot of the neurotic archetype:
Qualifications: Over-involvement. The need for constant reassurance.lacks resilience
Impact: Poor emotional boundaries.They want founders to ease their pain, which distracts them from the core issues of their business.
Related: The founder-investor relationship goes beyond capital
Plan your future path
The venture capital industry operates under immense pressure that can lead to stress, anxiety, and fear of failure. Nevertheless, founders can’t bear the brunt of VC stress, and if you identify with any of these archetypes, it’s essential to address the core issues.
If you find yourself exhibiting bully or daddy behavior and feeling the need to assert power over others, someone may have exercised power over you in the past. . It is a wound that has not been addressed or healed. Without judgment, explore that core wound with a trusted therapist and find ways to reduce emotional projection.
If you are exhibiting the behaviors exhibited by the neurotic archetype, surround yourself with supportive people who recognize your challenges and can model emotional regulation, and use techniques such as mindfulness, therapy, and controlling your nervous system for anxiety. You need to use tools to manage it.
If you’re a founder facing a contentious relationship with an investor, especially if it’s about to turn into an abusive situation, my advice is to avoid yourself for not “fixing things” sooner. Stop blaming others. In my experience, founders first blame themselves and then internalize the stress and shame. Also, set boundaries, keep business discussions within the confines of scheduled meetings, and consider bringing others into the meeting for support. People see better when there are more people in the room.
Investors and founders alike should schedule regular sessions to openly discuss relationship dynamics. As with any interpersonal relationship, it’s important to approach these conversations with care and structure them to focus on the health and effectiveness of the partnership as a whole.
Successful founder-investor relationships can be difficult, but it’s important to remember common interests. To avoid making your startup journey more difficult than it needs to be, make a different choice. In the world of startups, where you are always at a disadvantage, it is important to choose how to turn that disadvantageous situation around.
Related: Investors are war partners, not beer buddies
