The Trough of Feedback
The Insecurities of VCs Who Desperately Want To Be Liked
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Stop me if you've heard this one before.
A girl (or boy) has a crush on a boy (or girl). Lets say Casey has a crush on Cameron. Nice, gender neutral names. Casey is nice to Cameron, says hello in the halls, helps them with their homework. But Cameron seems to be completely oblivious to Casey's existence.
Maybe Casey gets some advice from a well-meaning, not-too-sharp friend. Maybe Casey comes to the conclusion on their own. In any event, Casey gets the idea to be mean to Cameron to get them to notice. So they start to ignore Cameron, make digging comments anytime they interact.
And guess what? Cameron starts to notice.
"Nobody is mean to me," they think. "Everybody likes me. What's going on here?"
Cameron is intrigued, takes note, etc. Eventually one or both of them goes on to learn a lesson about the importance of healthy relationships built on actual respect vs. shallow enticements of mistreatment, all that jazz.
I consider myself a television aficionado. And when I think of this trope I've described, I immediately thought of several culprits of using it: Hey Arnold, Drake & Josh, Parks & Rec, Community, Buffy The Vampire Slayer, Friends, New Girl, How I Met Your Mother, The Simpsons, Freaks & Geeks.
The trope is everywhere. In wandering around the internet on the topic, I found a random forum from 2008 where someone referred to the phenomenon as the "treat 'em mean, keep 'em keen" trick.
Granted, most mature adults work their way out that kind of mentality by the 6th grade. But in the world of tech and startups, I think it may be one of the most important dynamics in understanding what makes most venture capitalists tick.
All VCs Are Subs
One of the most common refrains about venture investing is that its a "relationship business." Lots of people find themselves in the relationship businesses: law, wealth management, sales. But most of these relationship businesses consist of targets whose value doesn't change a ton.
If you're a lawyer, you generally know the clients you want to bag. And you either get them or you don't. Wealth management; either they're wealthy or they're not. In sales, even if they say no, you'll likely always want to sell to them. That doesn't change.
But in venture? You're not just in a relationship business. You're in a relationship business with targets that have constantly fluctuating value. Pass on a seed today? It might be the hottest Series A next year. Annoy a Stripe operator on Twitter? They might be the next "hot" founder. Mistreat a CTO in one company? They might leave and never want to take your money when they start their own company.
As a result? Most VCs became spineless, submissive, love-hungry puppies that will do anything for anyone's validation. This leads to several unfortunate realities about most VCs: (1) they're skeptical of anyone who likes them, (2) they're rarely honest about when they might be wrong, and, most importantly, (3) they're usually incapable of providing valuable feedback due to a dynamic I call "The Trough of Feedback." I'll touch on the first two briefly before getting the meat of it in the third one.
A Club That Would Accept Me As A Member?
I've seen countless examples of VCs who are immediately skeptical if a founder demonstrates an excitement to work with them. Every time I see it, I think of the Groucho Marx story from the video above. "I don't want to belong to any club that would accept me as a member."
Most VCs have developed a sort of Pavlovian conditioning. Like a bell means dinner, a founder who ignores you or puts you off usually correlates directly with the quality of a deal. The meaner the founder is to you, the more likely it is the company is the next Google. So what happens when a founder says, "I'd love to find a way to work with you?" A VC's reaction is immediate:
"Why? What's wrong with your business? Did everyone else pass? Why would you want to work with me?"
I have neither the time, nor the psychology PhD to unpack why most VCs have such a sense of self-loathing. But my guess is it just has to do with their famous pattern recognition. The best founders running the best companies don't have to perform, so they don't give VCs much deference. So investors have learned that pattern: the less deference they give to me, the higher quality the company probably is.
Think about it! SBF was playing League of Legends during a pitch to Sequoia, and they loved it.
The Erlich Bachman School of Negotiation.
It's Not Me, It's You
In the instances where VCs do fail or get it wrong, they have a built in mechanism to avoid taking responsibility. I've written about this before:
"Venture funds, contrary to the marketing framework they like to reinforce, are not long-term thinkers. They’re a collection of short-term careerists focused on maximizing the amount of success they’re associated with, [and minimizing the amount of failure they're exposed to]. As an individual investor, your economic interests are not as easily connected to long-term success, but instead short-term performance."
In fact, I've written several times about most VCs inability to confront the question "what did I get wrong?" First, in a post called "Being Honest About Intellectual Honesty," and then again in a piece called "What's In a Post-Mortem?"
A lot of times, that inability to be honest is tied to the same root cause that stops VCs from giving meaningful feedback. At the end of the day, a VCs job isn't to give you useful feedback, or advice. Their job is ensuring they have the relationship, access, and insight to invest in the best companies. And while admitting that your wrong would, in the long-run, make you better at identifying the next time you're trending towards wrong, in the short-term it damages your credibility.
Even one of the better known exercises in "we were wrong" admissions, Bessemer's anti-portfolio, is less an exercise in humility, and more a marketing exercise of "look how close we've been to greatness."
That perfect storm of insecurity on the one hand, and aversion to wrongness on the other, primes the pump for The Trough of Feedback.
The Trough of Feedback
First, a big thanks to Leslie from her post a year ago. It's what started forming the idea for the trough of feedback in my mind.
Leslie's comment didn't make me think a lack of feedback was a universal or systemic problem. Instead, its a spectrum, or a trough. The trough is typically a VC's level of freedom. When you’re the best in the world you can probably give more direct feedback because you have very little to gain. When you’re new, or in the bottom tier of what you do then you can give direct feedback because you have very little to lose.
The same can be true of your relationship. If we barely have a relationship, maybe I can be somewhat honest, or if we have a really good relationship. But if we're somewhere in the "building a relationship" phase, honest feedback becomes much harder.
The strange, psychological minefield of bad VC feedback is nowhere more obvious than in the "reason for passing." Leslie touched on this right after her first post:
The common reasons why VCs pass, and the reason the feedback is so weak, is something a lot of people have touched on over, and over, and over again. And there are some really good nuggets in those posts, so I would recommend checking them out.
There are lots of common reasons and perspectives. VCs don't want to get cancelled for feedback that was too honest when founders talk to each other. Other VCs have tried to give feedback, but some founders get combative and it doesn't go well.
Most often I think about Brian Chesky's 7 Rejections from 2008 when they were trying to raise $150K for 10% of Airbnb. "Not in our area of focus," "market opportunity doesn't seem large enough," "not an area we're currently investing in," "technical staffing (?)", "we've always struggled with travel as a category."
The reality is I could make a bull argument, or a bear argument for just about any company at any stage. Most VCs could. It's not a question of what is true or not, it's what are you willing to believe? I've written about this before:
"In investing a significant part of the process is answering questions like 'what do you believe?' and 'what do you have to believe?' Most people try to be as data-driven as possible in answering those questions, but just like in religion or politics there are mountains of unknowables and so we simply do our best with the information we have."
And while that's how decisions get made, how those decisions get communicated to a founder can be very different. A lot of the rejections of Airbnb are ones you can't come back from. "We don't invest in travel." Okay, well if that's true then he's not coming back to you for the A, or the B, or the C. And VCs have caught on to that deterioration of future option value.
So that gave rise to the most common coward's refrain, "it's just too early for us." Now, if you're a dedicated later stage firm, and you exclusively invest once a company has $10M of revenue or some other specific milestone, then that's fine. Though if you took a call, did diligence, took up a founders time, and then use that excuse, you're also a coward.
But for firms who do actively invest at pre-seed through late stage, "too early" is the quickest way to sniff out a coward. Because that investor has made bets just as early. If they say "we want to see more traction; come back at the A," but they've invested in seed companies that are pre-product? Then they're hiding behind that justification.
VC Whispering
I've written before about how a scene from The West Wing became for me the spiritual articulation of what a VC should be:
"The President's deputy chief of staff is frustrated because he's failed to accomplish something. The president says, "the difference between you and me is I want to be 'the guy.' You want to be the guy that 'the guy' counts on." That summed up my desire as a VC."
That reason, for me, is why the trough of feedback is such a conundrum. I love a good jam session. There's nothing that gives me more energy than having a frank, earnest feedback session with a founder. Problem solving, breaking down walls, explaining how VCs might think about the business, divorcing storytelling from reality, all of it!
But the incentives of long-term relationship building, reputation management, and the like... it makes that whole process difficult.
But that's my problem with most venture firms. I think they're scared of the incentive / product mismatch. Instead of saying, "that sucks, lets fix it!" they say, "oh man, that sucks" and then move on. Product-led venture firms are more customer obsessed than the typical venture fund. They're more focused on what is the best experience for the founder, rather than what is the best experience for me.
It's the same idea as a sales person being willing to send me to another store, rather than selling me something I don't need. Does that hurt that sale? Sure. But is it a better experience for the customer? Absolutely.
Building a long-term product for long-term founders requires long-term thinking. Being afraid of giving feedback is short-term oriented. Being a dick when giving feedback is also short-term oriented. So there is most certainly a way to jam with founders in a supportive way, even if you're making the decision not to invest.
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This is a really good post. Also, LOL moments.
Amazing concept to think about!
Definitely changing the way I think about interactions now