The Balance of Success: Navigating Founder Motivation and Investor Expectations

Welcome to the Venture Capital Podcast. I'm John Bradshaw. I'm Peter Harris and we are here to talk about a VC specific podcast. Something that many VCs have mentioned to me over the last month. And as a vc, you always want to invest in winners. And as I'm now 40 plus, I mean this in this realm where several founders have sold a company, they've had significant success, success, and the VCs are complaining that the founders they're investing in are traveling too much, they're lazy or they're buying too many Teslas, things like that. And as a vc, how do you look at this scenario, Peter, of this person is you obviously want to invest in people who are successful. Patterns typically replicate. But I feel like there's a certain point when people get cash where they're not like Jeff Bezos, where they just go, go, go, go, go, where they just turn on the play switch and is that a problem? How do you think about this? Because I think the context is about five different VCs have discussed this with me over the last four or five months.

Yeah, I mean, it's a good question. Here's the thing. When you're young and inexperienced, it just takes more time to do the same amount of things because you just don't know, you don't know how to do things, you don't know how to talk to people. You don't know, you don't have the network to open doors, like all of these things. And so, you know, once you've had success, it, it becomes a bit of a trade off where it's like you now have the networks and the experience and the confidence to be a lot more productive. But you also have, you know, you've got wealth, right? And it's really easy to get distracted and people do get distracted. And so I don't know, I think a lot about Josh Coates. So we backed Josh Coates when he was, when he had just recently joined Instructure as the CEO and prior to that. So Josh Coates, his background, right, he started this tech company, raised a ton of money, like over $100 million, lost it all, that company imploded. Then he went out and raised a couple million dollars to run a company called Mozy that ended up being fairly successful. Sold it for the like in the like call it 50 to $100 million range, but hadn't raised very much venture money. So he owned a lot of it and cashed out. And so you could look at that and be like, hey, you know, he probably Walked away with like 20 plus 25 ish plus million dollars. Right? Maybe more. I don't know. And so like, was he really that motivated? And you know, he's talked about this on podcasts and blogs and stuff other places. But you know, he said, he said part of the reason that I went back and took the CEO helm at Instructure was because I was sitting at home playing video games and my kids came in. One of my kids and his friends, like, I overheard them. His, his friend was like, what's your dad do for a living? And he was like, I don't know, he just like plays video games, you know, and was like, he was like, you know, I could sit here and just play video games. Like, I've kind of earned that. Like, you know, whether you earn or not, like, you know, if anybody who's wealthy earns it or not is like a whole other debate. But like, he's like, he didn't need to, but for him, like he went and he was like, that's not what I want my life to actually be about and I don't want my kids to like, think that that's what my life is about and what matters in life. And so he went back and like, for him that was the motivation and it was like very transformative to the company. Like, he came in and immediately like was able to get the dev teams cranking harder, getting things done faster, provided a lot more strategic direction, was able to raise the funding they needed very quickly, was able to open doors for customers and close very large contracts. I mean, there were all of these things and I don't think it was because he was putting in 100 hour weeks. Right. You know, I don't, I didn't budget, I didn't keep track of his time. I'm sure there were weeks where he put in a lot of effort, but I think there were also a lot of weeks where you know, he was probably putting like 30 hours a week, but he was getting the same amount of done as somebody who had been cranking like 90, 100 hour weeks that just lacked kind of that experience and exposure and network and so forth. So, you know, I think, I think it's a challenge. I do think though, the flip side is it can go a little overboard where like the founder is never really driving the business. They're really too distracted by other things. And you know, it's like the company is like a ship without a rudder and gets and kind of loses its way. And so like, I do think that that is A challenge. And that is, you know, in my opinion, a place where you should have a board, right? You get into trouble, like, like there is another deal that I, that we both know where the founder was, you know, not even in the same state as the rest of the company. And this wasn't like a totally remote company. Like, everybody was in one state and he's off in another state doing all kinds of crazy things, spending all kinds of money, not really running the business. Right. And in that scenario, like, that's where the board needs to step in and be like, I'm sorry, you either need to come back, take the helm and drive this business, or you're out and we're going to replace you with somebody that does. And so, you know, I think most VCs that have been in this game for a while recognize that when they do deals, they put in terms that give them those types of controls and levers. I think inexperienced VCs that are just trying to be, to optimize for being founder friendly are the ones that end up getting screwed when, you know, those founders go off and do crazy stuff, right? A la wework. Um, so I don't know, it's, it's, it's a bit of a balance. And generally, like, and generally I think I would rather back somebody who's been there, done that and been successful than someone where, yeah, you may be grinding super hard, but I don't really care how much you grind. What I care about is like, do you perform and do you execute?

So in your mind, you just care about direction. You don't care if a founder wants to go do an international trip once a month, they're posting about it on their socials. As long as they're still hitting direction, good, positive directions, you're okay.

Yeah.

Is your approach, is the, the, the vc, the VC gospel according to Peter Harris?

Well, I mean, yeah, I don't really care about FaceTime. I care that you're building a really good culture. So if you're gone and that's like hurting your culture, that's a problem, Right? If you're gone and the company is not doing well, that's a problem. Right. But if you're just really smart on how you leverage your time and you know, you're still like, the company is still doing well, then sure. I, I don't, I'm not going to sit here and babysit people, right? And be like, you need to have your butt in a seat working. What I care about is like, you need to perform, you need to hit the metrics that you agreed to when we raised this funding round. Right. And you need to be doing everything in your, your power to hit those, those metrics and those milestones. So I don't know. That's my opinion. Other VCs may, may disagree. And I do think from an Opix perspective, it's, it's not very good if you're, you know, constantly posting on LinkedIn or taking trips and posting about it all over the place. For the same reason that, like, I don't think it's particularly good opex for a VC to do those same things. Right. Like VCs get slammed all the time for being super lazy.

Like in the Hamptons.

Yeah, we're gonna go like chill in the Hamptons and we got our Mexico, the New Hamptons. Then we've got our, you know, ski trip during the winter. So like, all we do is ski all winter and then like yacht it up all summer. And you know, like, when do the VCs actually ever work?

They don't.

They don't.

That's, that's just when they're associates.

That's right. Well, but you know, you could also look at and be like, hey, if your job as a VC is to do two deals a year and you knock both of those deals out in the first three months, four months of the year, and then you're just helping support your portfolio companies the rest of the year and, you know, is, is there anything wrong with that? What do you think from the founder perspective?

As the founder, I don't think as the founder, you care, you care about who's going to write the check. Yeah, I think it's more of an LP question. I think it's always optics.

It doesn't like, rub you the wrong way. When VCs are posting about their, you know, their Aspen vacation.

The founder hat is, this is the founder life. If I had an LP hat on, I'd be like, your work. Work for the money I'm giving you.

Yeah, but what if they have a really good performance? So it's like, yeah, well, like, what do you want? I have a really good performance. You're making a ton of money. I think me putting in more hours is not going to result in incrementally more money for you.

I think a lot of it's with social media. It's optics. Yeah, it's, it's perception. Perception is reality. Doesn't, doesn't matter how good you are. If, if you're the person who's posting pictures in My, in my mind.

Yeah.

And the fund is going well. The LPs are going to look at it and say, success must not be reliant upon the individual who's traveling.

Or they could look at it and be like, to my point, as like, when you get better, it just takes you less time to do things for sure.

And you know what shots to take. I mean, yeah, I literally felt the first couple years my, my entrepreneurial journey.

Yeah.

You're just stressing and agonizing of like, what's my shot? Which, which, which one of 10 routes do I go? And I don't even have a cat. You know enough like cash to make the first shot.

Right.

So like you, you can't make mistakes and so you just burn time. We're now like, I see other founders and I'm like, oh, it's option C. Go for option C. What are you waiting for? Just go.

Like go.

It's there.

Yeah. Don't waste time, don't waste money.

It's that leap of faith. It's super hard as a founder.

It's super hard, but like when you have it, you don't waste the time, which means you don't have to put.

In as much time, but you get there.

Yeah, it takes a while to get there. So again, it just depends if I backed a super like a first time founder and they're going on vacation like, you know, every week, I probably have a problem with that. Right. You're gonna be like, dude. But it's probably also like the performance of their startup is also gonna reflect that. But if I have a company where like, man, the thing is like just a rocket ship to the moon and it almost doesn't even matter that they have a CEO and the CEO wants to like go on vacation.

All right, that's true. I mean, I remember this is one of the first lessons John Richards taught me that. I remember he taught a class at byu. He's a local seed investor and, and he talked about founders who invest that he invested in. And then they buy a Porsche.

Yeah.

And it literally changes the optics and I think it affects their next deal. And I think the people that long term, I've come to respect the most are the individuals with, you know, immense just self discipline.

Yeah.

It's the ones I can joke with them that are, you know, they're what, 50, 60 million in the bank. I joke that their credit card's going to bounce, bounce at lunch, so they better let me pay.

Yeah, yeah, yeah. And you know, I don't know I think it's a balance. Everything is a balance in life. Right. But am I willing, Am I still willing to write a check behind a founder who maybe isn't as hungry, but they bring a ton of experience and connections and other things to the table? Yes. But I also think there is an element of, like, you still want to back. Like, you never want to back a founder who isn't motivated by something. Right.

Is there a part where you say this founder is too successful? I mean, obviously you want successful people.

Like, if Jeff Bezos comes. Well, no, I don't think so. I don't think it has anything to do with success. I think it has everything to do with more motivation. So if Elon Musk came to me and was like, I got this new startup idea, would I fund him even though, like, depending on the month, he's the richest man in the world? Yeah, I, I would like his success. And his wealth clearly does not matter in terms of innovation.

Yeah.

Innovating and building and being motivated. So just kind of depends on the person. The thing that's super hard, too, is that I don't think most people know themselves well enough to know how being successful will impact their personal motivations.

Oh, for sure.

So you've also got that element of, like, okay, well, I don't. I don't know. Like, this person doesn't even know. How am I supposed to know if this person doesn't even know?

Like, you don't know until you're in that spot.

Yeah.

And I think different things incentivize us at different times. And your kids saying, oh, my dad plays video games might just be enough incentive.

Yeah.

So again, the reason I'm asking is just VCs have been asking this question or complaining or bringing it up casually.

Yeah.

And I'm just like, how does Peter think about this from a VC perspective?

So what do you think from an entrepreneur perspective? Right.

I'm very cognizant of what I post and don't post. Not only for. For the. Not for the. More, for the investors, but even for employees.

Yeah.

And if you go to, like, masterminds of other service providers, they're constantly thinking about, like, if they need to buy a car, what car do I buy?

Yeah.

Certain cars below. They think you're not successful. If it's. If they buy the BMW, the perception is they're paying them too much and they should choose someone else.

Yeah. Yeah.

So it's just something that, that when I, when I make decisions and when I post online, I second guess Myself, because I'm like, am I, you know, am I being true and authentic or, you know, what is that message being shared?

Yeah, but I mean, so I get that, but what do you think of the founder who, you know, maybe they're like, okay, fine, John, I'm not going to post about my trip to Italy.

You know, I think it's their decision.

I'm just, again, should they go to Italy?

They can do whatever they want to do. I'm not judging that. I'm just saying, VCs, let's stay on the core. The core is in the last three months, seven to 10 VCs have asked me what I thought about certain founders that they see traveling a bunch or they've mentioned them casually.

And I'm asking you, how did you respond to those founders? Like when they ask you, what do you think of these founders? In fact, they're traveling all day.

I'm Sweden. That's my, that's my role. My job is to be Sweden. I don't know what's happening, John.

I'm not asking for, I'm telling you the answer. I'm not asking you for dirt. Okay, so you just were like, I don't have an opinion.

I don't know enough about what's happening and I don't know what their metrics are. And I think you make a fair point. If someone can get double digit growth month over month and they're only working two weeks a month.

And how do you feel as a founder if like, you know, there's another founder who you know is going on like European vacations? I found, you know, once a month.

I'm happy for them.

And they just raised like 2x what you could raise.

I'm happy for them.

All right.

I'm not the one who's complaining.

Okay.

Again, the core of the message is.

Do you think that's true amongst multiple brought this up? Do you think that's true amongst other founders? Like they just don't care what other founders are doing. Like, I'm playing my own game, I'm running my own race. I don't care.

I think other founders get jealous.

Yeah.

I want to be at that spot where I can be going on these trips, where I can be doing these things.

You're just more emotionally mature than most founders.

I'm not saying that. And apparently VCs, we're focusing on the core. I'm asking this question because 7, 7 to 10 VCs in the last two to three months have asked me directly.

Yeah. And I'M just asking what your perspective is from the founder.

My perspective is, is I'm happy for them to be in a position in.

Life where they can do that.

Where they can do that. Especially where people Forget the last 10, 20, 30 years of their career was probably hustle.

How about this from like, because when you take on a client, you're in some ways investing them. How do you feel? How would you feel about that with a client that was doing that?

I don't care.

You don't care as long as the check clears.

It's whatever the agreement is. The agreement is codebase Does X. Yeah. As a client, you make these payments.

On these terms so you don't worry that like, oh, this person's on the boat all the time. Therefore this company may not be a long term client because they'll eventually fail.

No, I mean, I look at different metrics. How long does someone pay their bills? What's the status? Are they following a pattern?

Sure.

Like, I don't, I mean if someone wants to, I don't know, eat a bar of gold, I don't care.

As long as they pay on time.

That's their, that's their prerogative. Again, the context is, is our audience are as half our founders, which I don't think this conversation matters to. I mean, I guess it does matter too, but probably very little. And the other half is those want to be wanting to be a VC and VCs asked this and I thought for those that want to be a VC and you're analyzing potential investments and people who have had significant success, how does that affect your investment thesis?

Yeah, I think founders probably care because they're probably like, you know, how hard do I need to work before my VC gets pissed that I'm being lazy?

Oh, from that perspective, I think that's a different thing. If it's all about control, they the less control, the more they probably care.

Yeah, could be.

Could be the end.

I don't know. What do you guys think in the comments? Please let us know.

This is a good husband wife episode where we're bickering. I love it.

I wasn't trying to bicker, but John loves to bicker, so here we are.

Oh, I don't like to bicker. Again, the core was VCs have been asking the audience wants to be, some of them want to be VCs. How does this affect your investment thesis? That's probably. I should have made it more clear.

At the beginning and I'm just trying to pull on the founder perspective. Because this is a vc foundered.

Oh, for sure. And as a founder, I don't care. And if I was in a seat, it would depend on how secure I think I was or wasn't. Okay. Like, I literally like one of the founders. I know. I don't think he worked that hard at all. But a private equity company came through and bought half the business for tens of millions.

Yeah.

So it doesn't matter to me. What matters is the life they chose to live as a company collectively, the commitments they made with each other and their investors, and they were successful.

I also think too, there is this misconception this happens less in venture because in venture, almost always you're just running super fast. But in other businesses that aren't venture backed, you see this happen more often where people look at the, at the guy who started the company, running it, and you know, he doesn't. He or she's not working super hard and they're like, look at this guy. Like, he doesn't. She. He or she doesn't deserve like this great outcome because they don't even work that hard anymore. But they're not thinking about, like the early days when they were like, putting in blood, sweat and tears, taking tons of risks to get the thing off the ground. And now they're finally enjoying the fruits of their labors. Like, we all have like these super short term memories. And so there is a bit of that too, where it's like, well, you know, do they, again, do they need to work that hard at this point for this thing to be successful or not? And like, really what matters is outcomes, not. Not effort.

So again, that's. We. We have our answer right there. Your folks. The outcomes is what Peter cares about the most.

Yep, that's right. Ends justify the means. Just kidding.

All right, well, go to BC fm, comment below. Let us know your thoughts and we'll see you on the next episode.

Thank you.