This month it was my great privilege to join Battery Ventures as an investing partner. Unlike my new colleagues, I have no experience as an institutional investor: I spent virtually my entire career as an entrepreneur and CEO of the company I co-founded twenty years ago, Guidewire Software*. There is of course considerable precedent for former operators becoming VCs, but for me it was a poignant decision. From the start of my career, I declared myself (rather righteously) a member of the entrepreneur tribe, one who wrestled in the arena instead of merely placing bets from the sidelines.
Why then trade the former persona for the latter? The simple part of the answer is the opportunity to join a storied firm I have long admired at a time of exceptional innovation in every category of software. Moreover, Battery’s portfolio strategy of stage-agnostic, seed-to-buyout investing strikes me as more resilient through different macro conditions. And I believe that Battery’s values of low-ego meritocracy, self-critique, and internal talent development are the hallmarks of organizations that thrive through generations of succession.
The less straightforward part of the answer requires understanding, as I do now, that good investors have the opportunity and duty to do far more than merely placing and monitoring bets. In the earlier era of Silicon Valley when I co-founded my company, that “more” was defined as guidance, comprised mostly of advice urging startups to follow the practices of successful companies. (The Oracle/Siebel playbook of “growth = sales reps” featured prominently.) Today, “portfolio support” has evolved into far more sophisticated and industrial form, with specialized teams that augment startups’ recruiting, sales and corp-dev functions.
Useful as that help often is — even the guidance, at times! — I don’t believe that is all that founders value from their investors, nor is it what excites me most to try to contribute. To explain why, I need to share a bit about my own entrepreneurial experience.
It was a journey of profound personal growth, learning, and deep bonding with my co-founders and the team that walked the walk with me. But it was also, for very long stretches, exhausting and painfully lonely. Worst of all was the gnawing fear of simply failing. At one point about eight years in, I struggled to avoid the stark conclusion that we weren’t going to make it. Our competition seemed too entrenched and ruthless, our product domain too complex, our end market too risk averse. It felt like I had thrown away my career and exhausted myself with nothing to show for it. Those days were filled with grim fantasies about going into witness protection to avoid running into classmates who were advancing solid careers in academia, law and finance.
Why did it not turn out that way? Because a startup is not a corporation, and a founder is not an employee. Well, they are, but only in the notional sense. The profound difference is that a founder commits to a venture something beyond his time and energy, something beyond even the opportunity cost of years of his career: the founder commits his identity and his honor. Hence, the sports and business cliche “Failure is not an option,” is literally true for the founding team. For while failure may be delivered by mistakes or larger forces, the founder cannot opt to fail, cannot opt to treat his venture as just a job, cannot opt to join a competitor’s team who may be winning. Or at least he cannot do so without living a contradiction. He has chosen his quest, he has pledged his honor to his investors and team, and he must see it through.
Many frustrations attend this truth. It frustrates the founder that his investors — once he is fortunate enough to have them — regard his venture as but one component of their portfolios while he is all-in on one outcome. It frustrates him that no one else can appreciate the intricate threading of the needle it will take to bring capital, talent, product, and customer into harmony. It frustrates him that his chosen market is fickle and unreasonable, not ready to take the small leap of faith that will allow his company to provide something wonderful. It frustrates him that it is not obvious to his team that now is the time to defer gratification and work with fevered intensity.
This may all sound obsessive or even grandiose, but every entrepreneur I have ever known well feels this in his or her soul: an intense mixture of excitement and frustration, conviction and self-doubt, energy and exhaustion. I contend that it is the characteristic feeling of entrepreneurship itself. The kind of people drawn into this crucible — or perhaps the people who are shaped by it — are among the most dynamic and passionate people in the world. I want to spend as much time as possible with them.
How do great investors fit into this subjective maelstrom? Is it empathy they should be offering?
Empathy yes, but more than that. The best investors I’ve observed know that it is hard to add thrust but easy to add drag, so they start by disburdening the founding team of the need to put on a performance. They avoid either over-simplifying the company’s situation with shallow comparisons or over-complicating it with homework assignments and side projects. They understand that the right answer has the best chance of emerging when all parties can speak the plain truth without wishful thinking and are equally committed to taking the most rational action. They offer observations and even provocations when necessary but are under no illusion that it is their insight that will guide the company to success. They recognize that not only time and capital but also willpower and concentration are finite resources that the team must allocate with care. And even though the risks are not as sharp for them, they do their utmost to inhabit the same fierce motivation and terror of failure that is the subjective habitus of the founding team.
In contrast to my inexperienced self, I believe that the engaged investor can offer much to the founder if they get that balance right and attach to the critical questions besetting a young company. How do you persuade and capture value from customers under extreme negotiation asymmetry? How far can you compel your market to standardize its disparate practices on your superior approach? How do you weigh the value of loyalty and knowledge of a tenured team member versus the higher career achievement of an external hire? When and how should you transition sales activities from founders to a professional go-to-market team? How do you define and judge acceptable levels of product velocity and developer productivity? How much energy should be allocated to a second product and to what degree should it be insulated from exigent demands of the first?
The answers to such questions separate success and failure for a startup — and the more uncertain the demand environment and the more distant the likely exits, the narrower the margin for error. With the benefits of institutional experience and a broader field of vision than the entrepreneur, the engaged investor can materially increase the chances of getting to better answers. Often the most important contribution is to identify or frame the critical question in such a way that it can be answered at all.
I look back with gratitude to those who helped me in those all-important decisions, including Battery, who invested in my company’s Series C before the last downturn. Not only did getting those decisions (mostly) right enable traction and eventual market leadership for my company, they unlocked over a decade of personal growth for me that surely would not have happened otherwise. I cannot imagine a greater privilege than to participate in the same for another generation of entrepreneurs, nor a better platform on which to do it than the remarkable firm I have joined.
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*Denotes a Battery portfolio company. For a full list of all Battery investments, please click here.