Choose Your Founder Friends Carefully

I read Roger Ehrenberg’s piece on the true meaning of “founder friendly’ with interest.

His view that the crowded nature of the investment market (excuse me if I use the word) ecosystem, with too much money chasing too few good ideas, has led to a shift in power which means that investors are so worried about missing out on the next big tech thing that they fail to give founders the feedback they need in the way that they need it.

In my experience there are three dimensions of social interaction- whether it is within families, businesses, ad hoc business ventures or investments.

Choosing the right dimensional combination is hard. There are only three but these can be combined in many different ways.

You can do things to people, for people or with people.

Doing things to people means taking actions that manage your risk, not shared risk. Extreme forms of this might include launching missile strikes or dropping barrel bombs. It’s easy if you have the firepower or the exclusive control of the investment. There will, of course be a price to pay. Founders often have a mental picture of themselves as outlaws or guerrillas anyway and even if the image as a load of crap, the best of them are generally pretty good at asymmetric warfare. Such wars tend to destroy markets and opportunities as well as the indigenous population and infrastructure.

Doing things for people is also easy. After all, we were all mostly children once. We like having things done for us, and if we are happy then the person doing stuff for us is also — mostly- happy. They have fulfilled their aim of getting a struggling start-up off the ground and- if lucky and smart- scaled. They have more than satisfied their investors who are pathetically grateful; for somewhere they can get a better return than in increasingly static industries and diminishing traditional financial instruments.

Doing things with people is very, very difficult. Designing risk management jointly when parties are suspicious, narrow minded and over focused is even harder (yes I am talking about founders). In such situations, the investor tends to build defence in depth with complex control and incentive instruments the true impact of which is…sometimes…deliberately obscure. VC intelligence networks are almost invariably more complex and far reaching than those of founders. This creates an aura of suspicion.

Choose your action combinations carefully. Getting the balance right is hard.

And at the end of the day there is another- critical- joint decision to be made. If you want to mitigate risk by creating the next Snapchat or the next three billion PAAS service then okay.

But can a truly disruptive innovation be risk managed on the basis of previous similar risk management strategies.

I think the answer if definitely “no”, but I’m prejudiced.