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The world of venture capital (VC) has long been characterized by a close-knit and somewhat private community. Founders typically keep a low profile regarding what happens behind closed doors, largely due to their significant financial dependence on the investment 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 growing involvement in the VC community has uncovered both commendable individuals and concerning trends that have direct implications for founders.
In the venture capital field, there are VCs who truly support founders, but there are also those who exhibit behaviors that can hinder entrepreneurial success. Despite the shared desire of all stakeholders for optimal business performance, founders and VCs sometimes face misaligned incentives. While investors may have the intellectual intent to support their founders, there is a challenge in fostering an environment where founders feel comfortable being open about what works or doesn’t work in the founder-investor relationship.
Drawing on my experience as a business psychologist, I have observed the financial repercussions of founders who become distracted by managing investor relations to the detriment of their businesses. My goal is to shed light on these observed issues and encourage VCs to reflect on their actions. Projecting emotional or mental health issues onto invested founders not only risks financial returns, but also exacerbates challenges for entrepreneurs already facing significant obstacles.
Related: 5 tips for navigating the entrepreneur/investor relationship
Three prevalent dysfunctional VC archetypes emerge
1. The Bully:
The archetype of the bully in the venture capital landscape often presents itself as an investor with an initially charismatic and supportive behavior. However, this facade quickly transforms once the ink on the contract dries. These VCs may not have substantial operational experience as a CEO, leading them to impose their subjective opinions on what it takes to be a successful CEO. Criticisms often target the founder’s decisions and sometimes question their character, suggesting they are unfit for the role or negligent in their fiduciary duties.
The Bully intentionally uses vague strategic advice, creating ambiguity to make failure more likely. This lack of clarity allows the Bully to seize opportunities to highlight the founder’s perceived incompetence, negatively impacting the founder’s self-esteem and decision-making process. The unpredictable nature of interactions with such VCs further contributes to an unhealthy founder-investor dynamic.
Snapshot of the bully archetype:
Quality: Lack of operational experience; emotional volatility; create “gotcha” scenarios.
Impact: Harmful to the founder’s self-esteem; insecure attachment; The relationship between founder and investor leads to a lack of trust
2. The dad:
The dad archetype is characterized by a condescending attitude and a hero complex. These investors exploit their initial trust in the founder as a tool of manipulation, reminding the founder of their unwavering support. This dynamic can lead to the violation of professional boundaries, with the investor overstepping boundaries by providing unsolicited advice. Investor Daddy’s fragile ego is highlighted, revealing the need for constant validation from founders to maintain perceived relevance and importance. This emotional dependence distracts founders from their primary responsibilities, creating an unbalanced power dynamic that is detrimental to business success.
Snapshot of the dad archetype:
Quality: insecure; manipulative; violation of professional boundaries
Impact: unbalanced power, as the founder may find it difficult to assert independence or make decisions without the investor dad’s constant approval.
3. The neurotic:
The neurotic archetype enters the VC community, often through family or friend connections, with a potential lack of resilience for the roller-coaster ride of startup life. While these VCs may possess impressive intelligence and academic credentials, they struggle to endure the inevitable ups and downs of the startup ecosystem. Their inability to address challenges drives excessive involvement in portfolio companies, seeking regular performance updates. This behavior is driven by a lack of armor for the job, which leads them to lean emotionally on founders during difficult times.
While their intentions may be well-founded, the neurotic archetype needs to cultivate greater resilience. Instead of emotionally unloading on your founders, seeking external support to manage anxiety about your portfolio’s performance is critical to maintaining a healthy investor-founder relationship.
Snapshot of the neurotic archetype:
Quality: excessive involvement; need for constant reassurance; lacking in resilience
Impact: poor emotional boundaries; look to the founder to ease their distress, which leads to founders becoming distracted from core business issues
Related: The relationship between founders and investors goes beyond capital
Chart a course to follow
The venture capital industry operates under enormous pressure, leading to stress, anxiety and fear of failure. However, founders cannot bear the burden of VC stress, and if you identify with one of these archetypes, it is essential to address the fundamental issues.
If you find yourself exhibiting bully or daddy behavior and feel the need to assert power over others, it is likely that someone has exercised power over you in the past. This is a wound that has not been addressed and not healed. Without judgment, find a way to explore that core wound with a trusted therapist to reduce emotional projections.
If you exhibit behaviors typical of the neurotic archetype, you should be aware of your challenges, surround yourself with supportive people who can model emotional regulation, and use anxiety management tools such as mindfulness, therapy, and nervous system regulation.
If you’re a founder facing a contentious relationship with investors, especially one that borders on an abusive situation, my advice is to stop blaming yourself for not “getting this” sooner. In my experience, founders blame themselves first and then internalize the stress and shame. Additionally, try to establish boundaries, keep business discussions within scheduled meetings, and consider inviting others to meetings for support. People can present themselves better when there are more people in the room.
Both investors and founders should schedule regular sessions to openly discuss the dynamics of their relationship. Just like any interpersonal connection, it’s critical to approach these conversations with care, ensuring they are structured to focus on the health and effectiveness of the overall partnership.
Managing the founder-investor relationship is difficult, but it’s critical to remember shared interests. Choose differently to avoid making the startup journey more difficult than necessary. In the startup world, where the odds are always against you, how you choose to overturn those odds matters.
Related: Investors are your war partners, not your beer buddies