Point of View — Entrepreneurs v Funders

Big Red Car here on a sunny SXSW Tuesday in the ATX. On Earth as it is in Texas. No sign of snow, but it’s early.

So, the world is divided into three basic camps:

 1. Entrepreneurs and founders — consumers of capital

 2. Funders of all kinds — angel investors, venture capitalists, friends & family

 3. Ballerinas & poets — folks who are not in the startup world and are gloriously happier in their ignorance of it

Each understandably has a unique point of view depending which role they undertake. Forget about the ballerinas & poets for this discussion.

Entrepreneurs, founders, CEOs — point of view

Entrepreneurs have an idea which they desire to build into a company of unicorn proportions, take it public, buy a G-IV and an island in the Caribbean, marry a legal immigrant super-model, get their pictures on the cover of Fortune and Forbes, and live happily ever after wallowing in their fortune.

[Guys with legal immigrant, super-model wives have been striking some good blows recently. Thank you, Melania and Giselle.]

LUIS GUERRA JR./©2011 RAMEY PHOTO 310-828-3445 NO ITALY/NO SPAIN New York, May 2, 2011 Arrivals at the "Alexander McQueen - Savage Beauty" Costume Institute Gala At The Metropolitan Museum Of Art. PGagu68

Lucky long-haired, collar-pinned, pocket-hanky chap with a legal immigrant wife. Plus, she has a decent income in her own right. Winners. Winning never gets old.

In the course of doing this, the entrepreneur will solve a huge pain problem for the world or create an insanely powerful new idea. As an example, where would politics be today without ….. Twitter?

Lady Liberty Weeping

OMG, Twitter? President Trump thinks I look “hot.” Can I go back to France? Please. [Obligatory negative reference to President Donald J Trump.]

Entrepreneurs are typically zealots and fairly high strung. Take a look at the maniac running Uber to get an idea of how their headspace and timing are set.

[For the uninitiated, “headspace and timing” is an adjustment one makes to fifty caliber machine guns to ensure they fire at the promised rate. You screw this up and the gun stops firing, which will piss off a lot of people on your team and buoy the shitheads on the other end of the barrel. It is a manly, military reference that harkens back to the days when the Big Red Car actually taught folks how to set their headspace and timing. Machine gunners, not entrepreneurs.]

Funders — point of view

Funders are using OPM (other people’s money) to fund the entrepreneurs with an eye toward acquiring all the freely floating currency in North America. They are wedded to making money while keeping a pittance for themselves.

[Disclaimer: Yes, Virginia, there are some altruistic angels named “Uncle Mortie” who just love their favorite nephew, “Alex.” That is true.]

Funders want to control things, since after all we are talking money here.

They are the kind of folks who punch (“mash” if you are from the South) the elevator button twice even when the floor light is lit and the elevator is moving. Control is a big deal to them.

This shows up in the amount of runway they think you need — six months, so you come back on a short leash to sit up and beg for more, while a Big Red Car says you need twenty-four months, so you can run amok and survive a setback or two and, maybe, pivot at an inflection point.

It also shows up in things like the structure and composition of a board of directors.

The collision

The conflict occurs when the funders want a disproportionate amount of control. [No story is any good unless there is some conflict. Houston, we have a conflict.]

Train wreck photo

What entrepreneurs need to do is say, “My beloved funder, I am prepared to give you control of such things as a fledgling board of directors in direct proportion to your ownership. Not a seat more.”

If the funders own twenty percent, then they get twenty percent of the board seats.

[Pro tip to entrepreneurs only: Stack the rest of the board with the guys who introduced you to your wife, a classmate with whom you did things so wicked that the repercussions can still be felt to this day, and Army buddies you have seen both drunk and naked in foreign locales. Trust me on this one. Do not put people on your board who have been “recommended” by your funders. Remember, these are the folks who will one day fire you. Do not weave the rope for them. Let them do their own heavy lifting.]

Skepticism

The world needs a bit more skepticism.

Not cynicism, which appears to be enjoying a bumper crop these days, just plain old fashioned skepticism.

When a funder says, “I am just going to assist you a bit here, entrepreneurial gentleperson,” beware. Be skeptical. Be cautious.

Advice

The world is alive with advice. Some of it, a very tiny portion indeed, is actually good. There is a tsunami of bad advice and some of it is expensive. Be wary of taking advice on flying airplanes from people whose core credential is a million miles flown in first class.

Seek and take advice from people who have actually been CEOs. Small, but important, point.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Do not come complaining to me when the board fires your ass because you lost control. Get some vitamin D today.cropped-LTFD-illust_300.png

 

 

 

  • Adam Sher

    Funders with OPM typically are constrained by risk/return (mostly return) requirements, and investment opportunities are forced into that return profile. This leads to all sorts of behaviors from funders that conflict with the objective of running a successful business.

  • Tim Bates

    BRC, yes they look at the world differently but not all funders are similar where as most founders are similar. Money from 3rd gen wealth (inherited) is less tethered than directly EARNED wealth. While at times the earned is more active than inherited that can be a good and bad thing. Inherited wealth can come with a consultant friend oversight, Painful.

    I have often heard the board of friends concept and strongly disagree! A good CEO does may want and at times need a lineman to protect his blind side but if he has no running backs or receivers he has no game. Boards are a time sink if they don’t add some value, the only protection against the unemployment line is performance so I prefer to play offense with a strong board! sharp ness comes from being honed on a strong stone!

    • JLM

      .
      There is nothing you write with which I fundamentally disagree. It puts a bit more substance into the same discussion.

      The point of the post was to provide a bit of thought and guidance as to when a healthy situation fails to materialize and to sound a note of alarm that these things should be processed long before needed.

      CEOs come in a lot of different packages — perhaps on this point I am disagreeing with you slightly, but let’s not quibble — and their relative experience is the critical discriminator in this discussion.

      When I was twenty years into the CEOing business, I looked at board meetings as an exercise in self-discipline encouraging me to prepare information which was of great utility to ………….. ME.

      At the end of every board meeting, I knew the company better than when I began the prep.

      I was already routinely seeking guidance on those things that suggested a bit of thought would be useful. I was a member of YPO, TAB, Vistage at various times and had access to peer thoughts. I also had a network of other CEOs.

      Your most valuable boardmembers are always going to be former CEOs. Also, the toughest to obtain.

      A seasoned and salty CEO becomes his own board much the same way that a high time pilot has a better sense of the performance of his aircraft than a twenty something air traffic controller.

      As the Titanic engineers were told, “Only results count.”

      In startup world, I do want to say that there is a lot of personal chemistry which is not performance related and the world is replete with stories of arbitrarily terminated CEOs whose replacements did not further the enterprise thereby calling into question the wisdom of the change of leadership.

      Being a CEO for the first time is like going to grad school. You learn a lot about yourself and business. After you’ve got the five year pin, it’s actually a pretty easy way to make a living and by the time you’ve done it for ten or more years, you’re actively delegating yourself out of a job.

      This is not an original thought. This is something Jack Welch said for years.

      BRC
      http://www.themusingsofthebigredcar.com

      • Tim Bates

        Also my first CEO/Board relationship created value in prep more than meeting. That was a young “all about me” view of the world. The meeting itself was like a partner dinner at a bad restaurant.

        My second was an odd Euro style board with a fiscal meeting and an operational meeting. A great friend introduced me to the Carver Inst. method of Board mgmt. developed for non-profits but with minor modification worked/works great. It keeps the focus on roles, Ends (Board sets with CEO) and Means (delivered by leadership team) If a team member wanted the help of a Board member that was at the that team members request and CEO agreement. Keep board members from overreaching into tactical. It also reminds a Board their one card is termination and can provide good data to do that!
        The point is Founders and Funders/Board members all win when Roles are Directly addressed and agreed! Friends, Soft chats about hypotheticals create disasters.

        • JLM

          .
          You have had a lot of interesting experiences. The best is when you have a “gray haired eminence” on your board, someone with so much experience and humanity that they can bring the best performance out of the CEO. I have seen this in action.

          BRC
          http://www.themusingsofthebigredcar.com

  • sigmaalgebra

    Yup, not in ATX. Instead, here in Upstate NY with about 8″ of wet, slippery snow.

    First, yup, from general life experience and observation and also from recent politics, I have to conclude that it can be tough to know who the real friends are.

    Second, and it can be tough to find an investor who really understands a business that should be worth $1+ billion, unicorn proportions, that is, before the business has been built and before even a one person CPA accounting firm can tell.

    For

    acquiring all the freely floating currency in North America.

    So, that would be deflationary, right? So, print more money!

    About an investor, why so “tough”? Well, we’re talking:

    In the course of doing this, the entrepreneur will solve a huge pain problem for the world or create an insanely powerful new idea.

    and where maybe the entrepreneur will create just such an idea just to be able to solve just such a problem. So, we’re talking new, powerful, and valuable but before the CPA can agree with any evaluation above $0.00.

    Or, for why, we’re talking $1+ billion, unicorn proportions, and such successes are necessarily rare. Then the fraction of people who can accurately evaluate such rare things is necessarily tiny.

    And if such an entrepreneur is fully successful, he will discover that he doesn’t have much company, not many real colleagues. It can be tough for him to know who his real friends are, and, the more his pride has him show off his success and money, the tougher for him to know.

    E.g., it can be so tough that for the

    get their pictures on the cover of Fortune and Forbes,

    those may be one of the last things they want to do.

    Or they may be willing to give some big bucks just to get back the easy anonymity they had before their success.

  • JLM

    .
    Do you agree that founders and funders look at the world differently? What is their point of view? Is it all about control?

    http://themusingsofthebigredcar.com/point-view-entrepreneurs-v-funders/

    BRC
    http://www.themusingsofthebigredcar.com