Fear and loathing in venture capital

A core principle of venture investing is putting the founder first. Most firms do so in marketing; more and more are living it. That’s different to when I started out in VC more than a decade ago. And it’s a great change.

So the following should not detract from how hard it is to build a company. The founders are and should be central. To them belongs the glory. They are in the game; we are on the sidelines (if we’re doing it right). 

That said, I thought it would be interesting to write about some of the psychology of venture capital from the inside.

You can find quite a bit online about the psychology of VCs from the perspective of a founder raising money. And how to take advantage of it. From the article by Roberto Bonanzinga:

“There is a sort of unwritten law that if you are a venture capitalist you cannot perpetrate any fear, any weakness or hesitation.”

Thankfully, along with talking about how hard it is to be a founder, that’s changing. Brad Feld has written about depression. Fred Wilson has written about being an anxious investor. Fred Destin’s blog is subtitled “How I learned to stop worrying and love entrepreneurs.”

Here’s what’s psychologically difficult about being a venture investor, for me. All sources are anecdotal or autobiographical:

1/ Timescale

The feedback loops in venture are very, very, very long. And that may be an understatement. 

The average good investment will take eight to ten years to mature. Some of the best ones take longer. Heartcore led the seed round in Boozt in 2007. The company went public on NASDAQ OMX in 2017 (~$500M market cap). Add to that a lock-up period and we’re a good twelve years into the relationship before we’re liquid. 

The best venture investment I ever got to work on, Zoopla, took only seven years from seed financing by Atlas Venture (Fred Destin) to $1B+ IPO. And another four years to its acquisition by Silverlake for $3 billion earlier this year. That’s lightning fast in my world. And yet it is also more than a decade to the eventual amazing outcome.

Or take the average company funding cycle: 12 to 18 months. On average it takes about a year before you know whether an investment you did will get the capital to “turn over another card.” It’s a year spent working hard, cheerleading, trying to align all the pieces. And then you can’t raise because the contrarian thesis that let you back this amazing team was… well, contrarian.

And that psychologically is the cruel thing: all of your companies that fold will do so early. Many in the first 18 months (hard). Some after raising a second round (more painful) and some only after multiple rounds, on the last mile (extremely painful). 

Those hardest ones are doing great for a very long time, and then something goes really south - the market evaporates, management falls apart, the financing environment changes. And you’re sitting there with a sky-high post-money, a huge amount of liq prefs above you, bleeding cash, losing people. And you have meaningful capital in that company that at this point you’re just trying to save. Yes, the company but also the capital.

Conversely, all of your companies that do great will take for—e—ver to get there. I know VCs that had three children before their star company sold. That got married - twice. And sure that’s OK: let your winners run. All I’m noting is that the good ones take a long time, while the bad ones fail pretty fast (relatively).

So you don’t really know how you’re doing until you’ve spend around five to ten years of your life as a venture capitalist. Imagine doing something for a decade before you know whether you’re any good at it. 

I don’t know a single VC who didn’t struggle with this in the early to middle of their career. It’s heartbreaking when great, high-potential companies fail. Remember, these are all extraordinary people, working on something amazing. And it falls apart around them and you were (more likely than not) the last bag-holder that had to say no.

This is also when you start doubting yourself - no matter how much your more experienced partners and peers tell you that this is normal and if less of your companies fail, you’re not taking enough risk. 

This where you first see that you need real grit as a VC. And (super-human) patience.

2/ Control

Newsflash: all those terms and downside protection and material decisions you got when you drafted your docs? They mean nothing. You’re never in control. The founders are in control (hopefully) and on key decisions the board, as the capital-C Company, provides input.

But it’s the founder that plots the course, the crew that sets the sails, the market that provides the wind. And for some companies, all they let you do is get you on deck once a quarter to show you how nicely they’ve curled the lines. I’m exaggerating, but in some cases not so much.

Realistically, all you can do is guide, advise, question. And in that respect, learning to let go as a VC is not so different from learning to let go of your attachments more generally.

Weirdly enough, this is especially tough for former operators as board members. They’re still used to doing doing, even if they’re great at delegating. They expect to be the boss.

No control is also an excellent test of temperament. This is where the screaming VC appears - the ones who have lost confidence and are now seeking control in counter-productive ways. It always backfires. You’re not in control and once you lose composure, you’ll lose more of what little influence you had. 

3/ Multiple customers

Most venture firms I know are somewhat dysfunctional organizations. The partnership model lends itself to mild chaos. 

We’re fortunate at Heartcore that we’ve chosen the Benchmark model of equal GPs - equal salary, equal carry, equal everything - and have evolved over time a depth of friendship and collegiality that makes things very easy. We don’t sell to each other - we try to seek truth, jointly. 

But realistically you still have at least two customers for everything that you do: the founder and your partners. This can complicate matters, especially for VCs that have a tendency to “go native” with their companies. Note when someone talks about a company and says “we” in partnership meetings. There’s a fine line between the empathy/compassion needed to be a great partner to the founder, and feeling yourself as a part of their team. 

And then, at least a few times a year, we meet with our own shareholders, in some views the third “customer.” We’re lucky in that we have a small, stable set of Limited Partners that understand venture capital. So we don’t have to sell to them either - they understand that at different times in a fund, venture can look a little ugly. 

But I know of other funds where this is different and a part of the VC anxiety is that they need to actively spin the panoptikum that is their portfolio in the middle of its lifecycle to LPs that are more used to the navy-suited cowboys of private equity.

Of course the founder is the customer. But the stakeholders of the venture capital process - sourcing, decision-making, reporting - are many and can result in elevated heart rates. 

4/ The Grind, the Coalface, the Hustle, the Inbox… the FOMO

Venture is a very, very manual business. It’s mostly communications and relationships. The greatest tragedy of venture capital of the last decade is the exponential multiplication of inboxes. I now get deals on WhatsApp, Insta, Facebook, LinkedIn, Slack, … the list goes on. 

And like the grind at the coalface, you’re never done. That inbox zero is an illusion, you know that. Like the vein, the lode, the next best amazing company may be just one hustle around the corner. All you need to do is put in 30 more minutes, get on that other call, take that extra trip… 

Because ours is a game of power laws, if you miss the Facebook/Google/Spotify/Netflix that you could have looked at, you’ve not just screwed up your quarter or your year. You’ve screwed up your entire career. And for what? So you could hang out with your kids or take that cardiologist appointment? Exactly. :) 

Operating like this is a way to drive yourself crazy from anxiety. And yet some of the best investors I’ve met carry at least some of that anxiety. They’re still hungry. They’ll still show up at Drew Houston’s apartment at 9am on a Saturday morning.

I don’t know how I feel about being that way for another twenty years. 

5/ Master of the Universe 

Great activity tends to spawn great feelings of… productivity. The story that Jerry Colonna tells of his same-day West Coast trip from NYC rings very true (he ended up fainting in front of his daughter as he returned home). 

The position one has as an investor is incredibly privileged. There’s a responsibility that comes with that. And so you want to do right by your portfolio, your partners, potential founders, and the “market.” You’re in service to everyone and everything, and above all of course (consciously or not) to yourself, and so you end up doing stupid things like same-day trips, and unnecessary conferences, and voluntary red-eyes. Because you’re young and strong and invincible.

Until, of course, you’re not. And so you have to manage this flurry of activity because it draws you in if you’re not careful. It’s like the monkey mind. Scratch that: it IS the monkey mind.

6/ Ego

People want to talk to VCs. They want to talk to VCs because they’re hoping for funding. Not because VCs are particularly more fun at parties (well, now that I’m in my 40s: “dinner parties”). 

Many VCs, especially older ones, have developed behaviors to deal with this onslaught (“instead of pitching me here, could you send me an email…”). Some just become assholes. This is the way of the world.

At any tech gathering, as a VC you’re the prettiest girl in the room. Everyone secretly hates the prettiest girl in the room. Don’t let it go to your head, either way.

7/ Money 

I’ve now invested in 3+ founding teams that have built companies that have sold for over a hundred million dollars. They’ve become very rich. And I have not. Because such are the economics of venture capital.

Of the four funds that I have been a part of since starting in venture, the first one has started paying carry. And that’s actually great - more than 50% of VCs never see a carry cheque.

I made a decision five years ago that venture was going to be my career, for as long as the industry will have me and there are great teams to back. 

But occasionally the “opportunity cost” monster rears its ugly head and I spend a night lying awake dreaming up an amazing company to found. And then I go and tell my wife to do it, which at this point is very annoying to her.


So there you have it: my list of the the root elements of fears, anxieties, and other emotions, of working in venture. It’s the greatest job in the world. And sometimes it really, really sucks. Just like being a founder.

P.S. I could spend three days re-drafting and editing this to death. But I prefer it as stream of consciousness. Assume it’s like the old school “dictated, not read.” I hope that’s OK (there I go again with the anxiety). 

EDIT: replaced Sunstone with Heartcore as per our 2019 rebrand to Heartcore Capital

21 responses
One of the best things I have ever read about the VC business. You paint the gold standard, a standard to which very few VCs adhere. The first step is to know it. The second step is to do it. The comment about going native is priceless. The challenge for any financier is to be able to be both a "banker" and a "backer." Very few meet this mark. Everybody says they do, but few can make this grade. Always acknowledge it's not your money. It belongs to LPs. If you want to get rich, invest your own money. Remember everybody gets paid in cash, ego enrichment, self esteem nourishment, and that special kind of tired - when you have expended yourself in a noble cause. Well played. Write more. JLM www.themusingsofthebigredcar.com
Nicely written, Other side of table which many entrepreneurs don't read or are aware of. Best,
Thank you for sharing! As a founder, I can surely relate to your story about responsibility and anxiety. Fortunately for me, I’ve been able to be responsible by focusing on only one cause for the last 8 years. And going to the gym and morning meeting walks, has really relaxed my anxiety. But as you paraphrased, it’s a pivotal journey, and one can only get better, since giving up is never a solution.
Rings very true! Well written.
Why all the struggle? Because in a word early stage information technology VC funded startups are a mess. For both the venture partners and the founding entrepreneurs, nearly always they don't know nearly enough to have sufficiently powerful ideas and means of execution. The result is floundering around, confusion, anxiety, and messes. In strong contrast, there are plenty of areas of work in our economy where there is high competence and nearly no messes.
A perfect summary of my ten years in VC - thank you for writing it out so succinctly. All the best from my small town of 2m people called Perth, Australia.
Really appreciate the comments, everyone. Thanks! - Max
Such a great read - I am glad I stumbled across it. As someone who has worked in startups for a long time and just moved to the other side of the table, great great learning - the kind you don't always get easily even in this age of information plenty. Thanks for sharing!
Thank you for writing this, Max. I left an incredibly stable job as an economist for the US Gov't in exchange for an MBA and a shot at venture--and I got lucky and joined an incredibly experienced venture team in Luxembourg. But I've started to feel the nagging suspicions of what you flesh out here. It's so good to see that its not only normal, but expected, especially if you care about what you're doing and the teams you work with. So happy I ran across this piece!!
Fascinating insight. As an entrepreneur, the tendency is to think that all the anxiety and stress is on our side of the table - it is quite encouraging to know that the journey is painful and stressful for the VC too. Selfishly, I have never really empathised with that in meetings with VCs - now I know better.
Thanks for sharing these thoughts Max. As VC associate with only 2y experience, it helps me get a better sense of what my bosses are going through. PS: I agree, greatest job in the world :)
Fantastic write up! Spot on.
Very nice Max. Appreciate the vulnerability you shared here. Heard other comments like this with some older VCs who have passed the threshold. Not actively investing, but reminiscing on their past. I have always wanted venture as a potential career for the opportunity to grow more great companies, but I know how hard it can be to manage the many masters of your domain. Someday...
from a 10-year-seed-stage-VC - you're spot on!
Thank you Max!
This is a really good piece you wrote here, Max. Love the "monkey mind" reference - so true and something about one need to be aware! https://www.psychologytoday.com/us/blog/the-emp... Well done. Charlie Manuel
Great piece you wrote here, Max. Love the "monkey mind" reference - so true and something about which one need to be aware! https://www.psychologytoday.com/us/blog/the-emp...
Max - I just started at an early-staged VC in Berlin a few weeks ago and particularly #4 has rung true with me. I've already found myself chasing the "inbox zero illusion" and am trying to adjust to a more sustainable and healthy working style moving forward. Thank you for this insightful piece!
Just got a chance to read this, apparently I missed it two years ago when you wrote it. Phenomenal piece, I could identify myself with any sentence you have there. I also think Covid-19 really took things to the extreme, with many changes to the way VC operate, connect and live. Thanks for sharing!
Max, I have read and recommended this great piece many times by now. Thank you for sharing your fears and psychological challenges as a professional venture investor, it helps other less experienced VCs such as myself understand we are not the only ones feeling and facing those.