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The world of venture capital (VC) has always been characterized by its close-knit and somewhat private community. Founders typically keep a low profile regarding what happens behind closed doors, largely because of their heavy financial dependence on the investor community.
Understanding the dynamics within this community can be difficult without direct exposure or daily interactions with investors or founders. Over the past two years, my increasing involvement in the venture capital community has highlighted commendable individuals and troubling trends that have direct implications for founders.
In the world of venture capital, there are venture capitalists who sincerely support founders, but there are also those who exhibit behaviors that can hinder entrepreneurial success. Despite the shared desire among all stakeholders for optimal business performance, founders and venture capitalists sometimes grapple with misaligned incentives. While investors may have an intellectual intention to support their founders, there is a challenge in fostering an environment in which founders feel comfortable being open about what is working or not working in the founder-investor relationship.
Drawing on my experience as a business psychologist, I’ve observed the financial repercussions that founders can have when managing investor relations at the expense of their business. My goal is to highlight these notable issues and encourage venture capitalists to reflect on their actions. Projecting emotional or mental health issues onto investor founders not only risks financial returns, but also exacerbates the challenges faced by entrepreneurs who already face significant obstacles.
Related: 5 Tips for Dealing with the Entrepreneur-Investor Relationship
Three dysfunctional archetypes of VC emerge
1. Bully:
The bully archetype often appears in the venture capital scene as an investor with a charismatic and supportive demeanor at first. However, this interface quickly changes after the ink on the contract dries. These venture capitalists may lack significant operating experience as CEOs, leading them to impose their personal views on what it takes to be a successful CEO. Criticisms often target the founder’s decisions and sometimes question their character, suggesting they are unsuitable for the role or negligent in their fiduciary duties.
The bully uses deliberately vague strategic advice, creating ambiguity to make failure more likely. This lack of clarity allows the bully to seize opportunities to point out the founder’s supposed incompetence, negatively impacting the founder’s self-esteem and decision-making ability. The unpredictable nature of interactions with these venture capital firms contributes to creating an unhealthy dynamic between founder and investor.
A snapshot of the bully archetype:
adjectives: Lack of operational experience; Emotional fluctuations. Creates “gotcha” scenarios.
impact: Detrimental to the founder’s self-esteem; insecure attachment; The relationship between founder and investor leads to a lack of trust
2. Father:
The father archetype is characterized by a nurturing attitude and a hero complex. These investors leverage their initial faith in the founder as a tool of manipulation, reminding the founder of their unwavering support. This dynamic can lead to professional boundaries being violated, with the investor crossing over by offering unsolicited advice. The father investor’s fragile ego is highlighted, revealing the need for constant validation from founders to maintain their relevance and relevance. This emotional dependence distracts founders from their core responsibilities, creating an unbalanced power dynamic that is detrimental to the success of the business.
A typical shot of the father:
adjectives: Unsafe; manipulation; Violating professional boundaries
impact: Unbalanced power, as the founder may find it difficult to assert independence or make decisions without the continued approval of the parent investor.
3. Neurotic:
The Neurotic archetype enters the VC community, often through family connections or with friends, with potentially no flexibility in the startup life journey. While venture capitalists may possess impressive intelligence and academic credentials, they struggle to withstand the inevitable ups and downs of the startup ecosystem. Their inability to meet challenges leads them to become overly involved in their portfolio companies and seek regular updates on performance. This behavior is due to the lack of a thick skin for the job, which leads them to rely emotionally on the founders during difficult times.
While their intentions may be well-founded, the neurotic archetype needs to cultivate greater resilience. Instead of emotionally dumping on their founders, seeking outside support to manage anxiety about their portfolio’s performance is critical to maintaining a healthy investor-founder relationship.
Neural model snapshot:
adjectives: Excessive involvement; need for constant reassurance; Lacks flexibility
impact: Poor emotional boundaries. Searching for the founder to alleviate their suffering, which leads to the founders being distracted from the core business problems
Related: The relationship between founders and investors goes beyond capital
Chart a path forward
The venture capital industry operates under tremendous pressure, which leads to stress, anxiety, and fear of failure. However, founders cannot bear the brunt of VC pressure, and if you identify with one of these archetypes, it is essential to address the underlying issues.
If you find yourself exhibiting the behaviors of a bully or patriarch and feel the need to assert your authority over others, it is likely that someone has been exercising authority over you in your past. This is the wound that has not been treated and has not healed. Without judgment, find a way to explore this core wound with a trusted therapist to reduce emotional expectations.
If you are displaying behaviors exhibited by the neurological model, you should be aware of the challenges you face, surround yourself with supportive individuals who can model emotional regulation, and use tools to manage anxiety such as mindfulness, therapy, and nervous system regulation.
If you’re a founder facing a contentious relationship with investors, especially if the relationship is on the verge of an abusive situation, my advice to you is 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 look to set boundaries, keep work discussions within scheduled meetings, and consider bringing others into meetings for support. People can look better when there are more people in the room.
Investors and founders alike should schedule periodic sessions to openly discuss the dynamics of their relationship. Just like any interpersonal communication, it’s essential to handle these conversations carefully, making sure they’re structured to focus on the health and effectiveness of the overall partnership.
Navigating the relationship between founder and investor is difficult, but it is important to remember common interests. Choose differently to avoid making your startup journey more difficult than necessary. In the startup world, where the odds are always against you, how you choose to flip those odds matters.
Related: Investors are your partners in war, not your beer buddies
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