Every other day someone asks me the following question: “Are you an entrepreneur friendly fund?” and every time I struggle to come up with a satisfying answer.
Firstly, I’ve never met a fund that declared it is unfriendly to entrepreneurs. Secondly, I struggle to understand exactly what people mean by “friendly”. Does it refer to an attitude? Are people looking for a shortened due diligence process? Or is it specific investment terms that determine a fund’s level of friendliness?
But even worse, hidden within this question is the absurd assumption that by being entrepreneur friendly you sacrifice some potential upside.
Our investment philosophy is based on simple logic, not empty slogans.
Everything we do is based on one simple assumption: Our success is a BYPRODUCT of the success of our companies.
We know that the chances of success are very slim. It is extremely hard to build a very successful company. Therefore, our actions must increase rather than decrease the chances of success: Everything that increases the chances of our companies’ success is GOOD, everything that decreases it is BAD.
If you ignore all other considerations and focus only on the question “Is it GOOD or BAD to our companies?”, the answers to some of the most “complicated” VC-entrepreneur dilemmas become clear and simple:
We believe that replacing founder CEOs with outside executives reduces the chances of success dramatically. Therefore: It is in our interest to empower our founders and help them grow.
We know that keeping our founders motivated and well-compensated decreases the chances that they will look for an early exit. We also believe that happy and self-confident entrepreneurs are better entrepreneurs. Therefore: It is in our interest to make sure that our founders are well compensated and happy.
We know that companies need a certain amount of funding in order to reach product market fit. Giving them less will often result in insufficient resources in either R&D or S&M. Consequently, tough negotiations around reducing the initial funding amount are bad for the company and therefore bad for us. So: It is in our interest to provide our companies with sufficient funds to build a scalable business.
We also know that founders pour their blood, sweat and tears into their businesses and can sometimes find themselves with limited upside due to extensive dilution. This subconsciously decreases motivation which can decrease the chances of company success. Therefore, even when we can easily increase our holdings: It is in our interest to keep our holdings reasonable.
We know that giving veto rights to each investor is bad for the company. Some investors may use veto rights to force the company to make a decision which is not in its best interest. Therefore: It is in our interest to waive our veto rights.
This line of reasoning is applicable for every decision, big or small, that we as investors make.
Once our interests are fully aligned with those of our entrepreneurs the concept of entrepreneur friendly loses all meaning. We just follow one simple rule:
Make our founders and their company’s hugely successful.