Saturday, March 17, 2012

Learning to Be a VC: Giving Feedback to Entrepreneurs and Friends

Probably the hardest part of being a VC is having to say no. You get into the business because you want to help great entrepreneurs succeed, and then you find yourself in a reality where you have to say no over and over. One of the first expressions I hear of this was from Ashmeet Sidana, who told a group of Wharton students I was part of that his job was to say no 99% of the time and write one check a year. When I interviewed for Genacast Gil told me that VC was like fly-fishing: although you know what you're aiming for (catching a fish / investing in a great entrepreneur), you have to enjoy the process because otherwise you'll burn out quickly.

I felt OK with this, but nothing prepared me for the worst: having to say no to people you really like genuinely want to succeed. Many if not most of my friends are tech entrepreneurs and much of my social life takes place in the tech scene. This creates an additional layer of complexity to say no. Learning to balance doing the right thing personally and professionally in these situations has been emotionally exhausting, but it has definitely made me mature in both aspects of my life.

David Biesel wrote a great post about the challenges of giving overly direct feedback to an entrepreneur when passing on their business [1]. One of his interesting points is that "The more negative the feedback (even if genuinely constructive), the less likely an entrepreneur will return ... whenever his business and/or financing details have markedly progressed." VCs know that an entrepreneur whose business they don't think is a good fit today may be a great fit somewhere down the road; David's fund has made more than half of its investments in founders they previously passed on.

For me the "aha" moment came when reading this line:
... great entrepreneurs ... hear critiques as a learning opportunity to refining their business or how they effectively communicate about it.  Great entrepreneurs also value people who are honest and direct about their concerns, and use those points as a foundation for addressing them to build a relationship over time.
In other words, great entrepreneurs are people to whom you can give blunt and honest feedback without worrying about their holding it against you. Honest and blunt feedback may turn away some entrepreneurs, but these are not the people we want to invest in.

This realization also helped me reconcile with the difficulty of having to professionally say no to people I personally like: the best friends, like the best founders, are mature enough to handle criticism, know in what circumstances certain relationships and people fit together and when they don't, and these are the people I want to surround myself with in work and life.

[First in what will hopefully be a series of posts about learning the VC trade]


1 comment:

  1. As an entrepreneur, all I can do is echo the sentiment that I don't have time to deal with sugar coated or less-than-honest feedback. Negative feedback (from investors, from clients, from employees) is crucial to the entrepreneurial process (So is positive feedback!) so avoiding it does more harm than good for the entrepreneur. That said, there is still skill involved in providing blunt/candid feedback sensitively. This reminds me of when doctors first became aware of the incredibly positive effects of training in "bedside manner." Don't dance around the undesirable diagnosis, but use interpersonal skills to ensure the best long-term outcome.