VC Cliché of the Week

When you are driving the car, nothing is more frustrating than a back seat driver telling you what to do. It gets inside your head, makes you crazy.

Same is true of venture investing. VCs have a tendency to be back seat drivers. We like to tell the people running the companies we invest in how to do their jobs. It’s particularly true of VCs who have been operating execs before becoming VCs.

I remember the day my co-founder of Flatiron, Jerry Colonna, came back from a board meeting in Boston and told me about a conversation he had with one of his co-investors. Jerry had been a very good operating exec before becoming a VC. His co-investor told him that you either run companies or invest in them, but never to try to do both. Jerry took it to heart and became a great investor and advisor to the companies he worked with.

I was on the board of a company that will go nameless with a VC who will also go nameless who before becoming a VC had been a very sucessful entrepreneur and operating exec. He was constantly back seat driving and it drove the CEO crazy. The CEO would present a sales comp plan and the VC would tell him that he was doing it all wrong. Stuff like that. If I was the CEO, I would have been very tempted to hand him the keys to the car and tell him to drive it if he was so eager to do it.

Don’t get me wrong, I care intensely about the companies we invest in and am always obsessing about how they can do better. But I try like hell not to back seat drive.

It’s a lot about how you say things, not what you say. The most important thing is to advise not direct. Ordering entrepreneurs around won’t work. If they wanted to take orders, they’d be working at some big company taking orders from someone else. It’s also critical to soft pedal the advice. Coming from an investor, it’s going to have an impact anyway, so I find it best to say something like, "have you thought about", as opposed to "that’s not the way to do it".

I’ve learned all of this the hard way. By doing it wrong and paying the price.

Jerry’s co-investor had it right. You can either invest in companies or run them. But you can’t do both.