I first read Sir Alex Ferguson’s book Leading right around the time it came out in 2015. The book was the result of a collaboration between the famed Manchester United coach and Michael Moritz of Sequoia, who wrote an epilogue for the book. At the time I was still at university and hadn’t even contemplated a career in venture, let alone started working in the industry, so I admittedly wasn’t aware of who Michael Moritz was. After five and a half years in the industry, I’ve come to learn a great deal about Michael and his achievements, so decided to revisit the epilogue now that I have more context.
Upon rereading, one of the passages that really resonated with me describes a facet of the relationship between a VC and a founder:
In the second, where we are minority shareholders in companies started and run by people of great wit, imagination, drive and, often, emotional fragility and temperamental dispositions, we need to rely on powers of persuasion, sensible counsel and, more often than not, good humour, to help someone do something, or make a decision, the wisdom of which might not be immediately apparent.
Venture capital firms opposed to other buy-side firms like private equity firms, purchase minority stakes in companies where founders are majority shareholders and run the show. VCs invest in companies precisely because they want to work with the founders, not because they want to replace them or take on their responsibility. The job of a venture capitalist as a result is to empower the founders they partner with and help increase their chances of success.
VCs shouldn’t tell founders what to do because as minority shareholders they don’t have the legal grounds to make decisions but more importantly, because doing so cuts into the confidence of founders and erodes their ability to lead. If VCs do want to make a point, they should show not tell.
What’s the best way to impart onto a founder that they have a bad head of sales?
You don’t tell them that they have a bad head of sales, you show them 3 great head of sales.
Sometimes, given acute time or capital constraints, it can make sense for a VC to tell founders. But most of the time, it’s best to show them a potential option or course of action, and let them do the rest.