Dear Josh – The venture capital fund that led our last round just invested in a company that may compete for the same market. Does this mean our backers have lost confidence in us? We’ve been thinking about pivoting the company to refocus a bit. Would now be a good time for a strategic shift? And should we confront our investors about the potential conflict?
Sincerely, Sibling Rivalry
You are truly amazing. For years now I have been trying to come up with a perfect definition of why venture capital money sucks. Congratulations you nailed it. It reminds me of a story my friend Jacques once told me about a banker.
So the first French guy, Maurice, is spending another sleepless night worrying about the money he owes to his banker neighbor, Pierre. Many restless weeks pass until one night Maurice yells over to his next door banker (who is as usual sleeping soundly), “Pierre, wake up.” A sleepy Pierre comes to the window very angry and says, “Maurice why did you wake me up from a sound sleep?” Maurice then says, “I am not going to pay you back your money.” Then he goes back to bed and has the deepest sleep of his life. Pierre, of course, goes back to bed and tosses and turns the night away…
There are no morals to this story just as there are no morals to venture capital bankers. These girls only care about two things: making as much money as they can as fast as they can (post-modern strip miners) and not investing in irrational players. On the face of it you would think that a losing investment matters to them most, this is a venture capital fallacy, but these ladies are essentially legitimized gamblers playing the odds, they understand that every bet doesn’t pay off, the game is really a spread of good percentage bets. What makes these gals lose sleep is when they, and the venture community, find out that the CEO does cocaine, steals money, abuses employees, (in that order).
As for the vultures investing in your competitor, it could mean anything. They might be thinking eventual merger, maybe they like the space and they want to cover their bets (venture roulette), or possibly they like the space but think you suck, who knows. Remember once you take their money you bought yourself membership into the VC mafia and you have agreed to kiss the ring.
Bottom line, run the business using your own good judgement and do not let the devils (vultures, pricks, etc.) drive the business. If they want to, or have the power to, relieve you of command, so be it. This does not mean that you stop listening to them, they are your business partners after all, and they might just make you really rich. But you should always keep in mind what any good seaman knows: there is only one captain to a ship.
Josh Harris is the founder of JupiterResearch and Pseudo.com and the ceo of The Wired City, a web tv network in New York.
Need some advice? Email Josh at askjoshharris at gmail dot com.