The opinions expressed by Entrepreneur authors are their very own.
The world of enterprise capital (VC) has long been characterised by a tight-knit and somewhat private community. Founders typically pay little attention to what goes on behind closed doors, largely due to their significant financial dependence on the investing community.
Understanding the dynamics of this community could be difficult without direct contact or each day interactions with investors or founders. Over the past two years, my increased involvement in the VC community has revealed each commendable individuals and trends that have direct implications for founders.
In the enterprise capital space, there are VCs that do support founders, but there are also some that exhibit behaviors that may hinder entrepreneurial success. Despite a shared desire for optimal business outcomes among all stakeholders, founders and VCs sometimes struggle with misaligned incentives. While investors may have the mental intention to support their founders, the challenge is creating an environment in which founders feel comfortable talking openly about what works and what doesn’t work in the founder-investor relationship.
Drawing on my expertise as a business psychologist, I have observed the financial consequences of founders sidelining themselves by managing investor relations at the expense of their businesses. My goal is to shed light on the issues I have observed and encourage VCs to reflect on their actions. Offloading emotional or mental health issues onto invested founders not only risks financial gains, but also increases challenges for entrepreneurs who are already facing significant obstacles.
Three dominant dysfunctional VC archetypes emerge
1. Tyrant:
The Bully archetype in the VC landscape often presents itself as an investor with an initially charismatic and supportive attitude. However, this façade quickly transforms once the ink on the contract dries. These VCs may lack significant operational experience as CEOs, which can lead them to be given subjective views on what it takes to be a successful CEO. Criticism often targets the founder’s decisions and sometimes questions his character, suggesting that he is unfit for the role or that he is neglecting his fiduciary duties.
The bully deliberately uses vague strategic advice, creating ambiguity to increase the likelihood of failure. This lack of clarity allows the Bully to take opportunities to indicate the founder’s alleged incompetence, which negatively affects his self-esteem and decision-making. The unpredictable nature of interactions with such VCs further contributes to unhealthy dynamics between founders and investors.
A Snapshot of the Bullying Archetype:
Features: No operational experience; emotional variability; creates “gotcha” scenarios.
Hit: Harmful to the founder’s self-esteem; insecure attachment; the founder’s relationship with the investor leads to a lack of trust
2. Dad:
The dad archetype is characterised by a condescending attitude and a hero complex. These investors use their initial faith in the founder as a tool of manipulation, reminding the founding father of their unwavering support. This dynamic can lead to violations of skilled boundaries, resulting in the investor crossing boundaries by providing unsolicited advice. The fragile ego of the Daddy investor was highlighted, revealing the founders’ need for constant validation to maintain their perceived usefulness and relevance. This emotional dependence distracts founders from their core responsibilities, creating an unbalanced power dynamic that is detrimental to business success.
Snapshot of the Daddy Archetype:
Properties: uncertain; manipulative; violation of skilled boundaries
Hit: unbalanced power because it could be difficult for the founder to assert independence or make decisions without the ongoing approval of the Daddy investor.
3. Neurotic:
The neurotic archetype enters the VC community, often through family or friendship connections, with a potential lack of resilience to the rollercoaster of startup life. While these VCs may possess impressive intelligence and academic credentials, they struggle to survive the inevitable ups and downs of the startup ecosystem. Their inability to meet challenges results in excessive exposure to portfolio firms to seek regular performance updates. This behavior is due to the lack of thick skin in the position, which leads to emotional reliance on founders in difficult times.
While their intentions could also be justified, the Neurotic archetype needs to develop greater resilience. Instead of emotionally taking the fall on founders, looking for external support to manage concerns about their portfolio performance is crucial to maintaining a healthy investor-founder relationship.
Snapshot of the Neurotic Archetype:
Features: over-commitment; the need for constant reassurance; lack of immunity
Hit: poor emotional boundaries; seeks out the founder to ease his suffering, which leads to the founders’ attention being diverted from the core business problems
Charting a course forward
The enterprise capital industry operates under enormous pressure, which leads to stress, anxiety and fear of failure. Nevertheless, founders cannot shoulder the burden of VC stress, and if you discover with one of those archetypes, it is imperative that you simply address the underlying issues.
If you notice that you simply are exhibiting tyrannical or daddy behavior and feel the need to assert power over others, it is likely that somebody has exercised power over you in the past. It is a wound that has remained unhealed and unhealed. Without judgment, find a way to explore this deep wound with a trusted therapist to reduce emotional projection.
If you exhibit behaviors typical of the Neurotic archetype, you ought to be aware of the challenges you face, surround yourself with supportive individuals who can model emotion regulation, and use anxiety management tools corresponding to mindfulness, therapy, and neuroregulation.
If you are a founder and you are facing a contentious investor relationship, especially if it borders on abusive, I counsel you to stop beating yourself up for “not figuring it out” sooner. In my experience, founders blame themselves first and then internalize the stress and shame. Also try to set boundaries, hold business discussions as a part of scheduled meetings, and consider inviting others to meetings for support. People can look higher when there are more people in the room.
Both investors and founders should schedule periodic sessions to openly discuss the dynamics of their relationships. As with any interpersonal relationship, it is extremely necessary to approach these conversations rigorously and be sure that they are structured to focus on the health and effectiveness of the entire partnership.
Navigating the founder-investor relationship is difficult, but it is necessary to remember common interests. Choose otherwise to avoid making the runway harder than mandatory. In the startup world, where the odds are at all times against you, it’s how you select to turn them that counts.