Many years ago, I wrote this blog in Techcrunch. Certain updates are warranted, however, the core thesis remains the same: younger (and experienced) entrepreneurs need this assistance far more than capital (funding), even if they don’t quite realize it yet.
The concept of venture assistance is a remarkably simple, yet powerful, framework when pursuing entrepreneurial endeavors. Most VCs pitch their firms as being able to add value. Personally, I think leading VC firms do a pretty good job of being supportive of their companies, and most entrepreneurs are funded by good firms. But, on the question of “value added,” most venture capitalists, even among the leading partnerships, are relatively passive and ineffective when it comes to assisting companies except for maybe networking. This is exacerbated by the fact that investment partners might sit on a dozen or so boards. What harms entrepreneurs the most though, is sometimes, they don’t even give the right advice. They have not earned the right to advise entrepreneurs by having gone through the very lonely entrepreneurial journey.
A tough pill for most to swallow is that a surprising proportion of venture capitalists, especially those from the more financially oriented firms, do more harm to startups than good. Many find themselves on company boards without ever having built a company themselves, or seeing one from the inside. This is not intended to be iconoclastic, but truthful and respectful to the entrepreneurial process: How can one truly be empathetic to the entrepreneurial process and opine (typically with conviction) about it, when they themselves have not done it and are in effect, blindly leading giving directions down a path that they themselves have never seen? A coach who has never played the game is missing awareness. Most of us don’t know what we don’t know when operating in a new area, or in a new (to us) job. We are, as the academics would say, unconsciously incompetent.
We are very careful about our young team members if they go on a board and are in learning versus advising mode. We constantly ask these team members: “What have you done to earn the right to advise entrepreneurs? What are you qualified to give advice on, and more importantly, what are you NOT qualified on?” I don’t want entrepreneurs to get inexperienced advice on important matters. Aside from lack of experience in company building, the lack of empathy to the entrepreneurial process leads to advice that tends to detract value and fracture relationships. More importantly, the friendship and camaraderie that they develop can lead to a feeling of trust when the advice may lack substance.
As a result, many investors haven’t earned the right to advise entrepreneurs, a role that I consider laden with responsibility and fraught with the potential to do more harm than good by giving bad advice or being too short-term focused. To that end, we constantly correct anyone if they refer to an opportunity or company as a “deal.” These startups are the life of the entrepreneur, it’s their baby — it is not just another “deal” or “transaction” in an investor’s portfolio. The companies need help from board members with hiring key executives and with introductions to unreachable candidates. They need help with critical decisions, and with handling internal conflicts. And they need board members who will push them to be as great as they can be without voting against them on their board or crossing the line of making board “decisions” all while giving advice on hiring.
That leads me to one of my favorite questions around younger entrepreneurial companies: What is the role of an entrepreneurial advisor or board member? Even more importantly, what should a board member not do?
The right advisor asks the questions you never knew were important by leveraging their own experiences and, more importantly, their many mistakes. They should open your eyes to the previously unseen. They also look beyond more immediate imperatives to longer-term issues and to help create new understandings of your fundamental parameters, MVPs, pivots, focus, and ultimately “S” growth curves. They serve as guides, seeing around corners, and helping you navigate the difficult road of building a company from the ground up while your head is buried in ops, using their experience to spot things that an entrepreneur might otherwise miss (risks and opportunities alike), or to look into the future by reflecting on their experiences with other, similar companies.
At Khosla Ventures, we also believe that a good investor should be able to bring expertise to the table that can solve real problems that you and your team face. Our investing team is chock full of people who have started companies who can provide the kind of advice mentioned above. We are extremely hands-on — whether it is helping with fundraising decks, a product strategy session, discussing brand strategy, or even writing patents. We also have multiple advanced degrees (MD, PhD, etc…) in science or engineering fields. In addition, we have a group of operating partners who do nothing but teach and coach and mentor our portfolio companies — offering real targeted help, be it in leadership and management training, recruiting executives or engineers, AI technology or recruiting, strategy, design, manufacturing and more.
Our fundamental difference in the mindset of “assistance” versus “capital” is not a theoretical or a marketing statement. It is reflected in how entrepreneurs who raise capital from us and others, tend to prefer to work with us - in fact, Founder’s Choice VC recently ranked Khosla Ventures #1 out of all venture funds using a head-to-head Elo rating system that only founders could participate in.
Entrepreneurs usually deal with many problems at the same time, and being a CEO is a very lonely job. They’re often so buried in the details, whether things are going great or poorly, that they fail to look up over the horizon. The job of a good board member and advisor (I use these terms interchangeably) is to help teams raise their heads and spot oncoming problems that might be lurking around the corner, scope out hidden opportunities, and get a broader perspective. If things are going great, anticipating problems is even more important since overconfidence can kill a company. Challenging the team to think about risks or position some long-term assets can make a big difference in helping an entrepreneur “create” a larger opportunity. Asking questions that an entrepreneur does not want to hear is an equally important role, and having advisors who’ve made mistakes before helps.
Our goal isn’t to be the nicest among all investors, but rather to push teams to be as great as they can be, to help them see hard reality and the risks coming their way, and to press them to worry about burn rate or accelerate their spending depending upon the circumstances. By the same token, though we can push teams hard, we are extremely loyal to companies and entrepreneurs who we are engaged with closely.
Even more critically, in almost three decades of being on boards and advising companies, I have never once voted against what a team wants to do, even when I strongly disagree with their choice. I will debate every issue hard and push my point of view but leave the final decision to the team. I don’t believe boards of entrepreneurial private companies should ever vote (except on the one issue of hiring and firing the CEO). If the team doesn’t believe in what the board voted on, then they won’t be successful at implementing it.
One critical area for all young technology companies is hiring great talent. You have to source amazing candidates, drive a thorough and thoughtful interview and selection process, and then close the best candidates in your pipeline. Our recruiting team can provide expertise and assistance with technical talent as well as executive leaders — and perhaps more importantly can help you to hire and train a great internal recruiting team so that you can grow quickly. For critical hires, I like to personally get involved in companies where we are active. It is an area where I have seen the most bad advice given.
As we see other areas where we feel that our companies could leverage talent and expertise provided by an operating partner, we add that capability. We can help with AI and ML strategy, with design thinking, marketing, and building design into the DNA of your company, with supply chain and manufacturing if you have a hardware component to your offering, and with blocking and tackling issues like finance and legal as well.
Good advisors and board members help entrepreneurs avoid mistakes they might not see because they’re heads down focused on trying to build their business. Board members should serve as a trusted inner-circle of advisors that motivate company management to self-assess and improve, and good boards help founder CEOs scale by helping them build the right teams to support them. Sometimes companies need to spend time doing down-the-road planning and sometimes they need to focus on just getting stuff done for the next six months. Good boards know the difference, and they know what’s important when.
At Khosla Ventures, we believe that our role is to add value to our portfolio companies, not just to provide them with capital. That is why we call ourselves a Venture Assistance firm, and why we work so hard to live up to the expectations that that title sets. From mentorship about management to operational help in AI, design, brand, manufacturing, marketing, enterprise software, we strive to help entrepreneurs reach greater heights than they might on their own to the very lonely job of an entrepreneurial CEO by helping them expand their opportunity and fullest capability to ultimately deliver on the ultimate goal: build companies that truly impact the world.