How V.C.’s Can Pick More Winners
This is a guest post from my business partner Carl Sanders-Edwards.
In the last 2 years in Silicon Valley, I’ve met over 60 VC’s, been to countless conferences with VC’s presenting and been to numerous founder roundtables. Here is what I’ve seen:
When asked EVERY group of founders say the most important thing for the success of their company is culture and leadership - it’s also the hardest.
When presenting and asked about their most successful investments ALL VC’s cite the leadership of founding teams, ability to adapt and create strong cultures as the most important factor, especially in the long term. They even say a good product and strong market are just table stakes.
However, when talking about my business to VC’s I have NEVER been asked about my leadership, never asked about the culture of our team, never asked about how I think the company should be run.
It’s crazy. There is a strong pattern right in front of everyone's eyes - VC’s even say it when sharing success stories. Leadership and culture. The pattern predicting success isn’t in the product or the market or even the background of the entrepreneur - it’s in how they lead and operate. Yet I have seen no evidence, nada, zip, of it ever being considered in an early-stage investment. VC’s talk and ask about the market, the product, the go-to-market, the use of funds. Even when asking about previous experience it’s all about the technical details - the things that mean nothing in the novel environment the startup will operate in. All these technical details can be read in a pitch deck or researched from a desk but I never never experienced any VC digging into what they themselves say makes the biggest difference.
It got me thinking why this is. I mean the VC industry is full of very smart people who want to make the right decisions. Why is it getting missed?
The only thing I can think of is that leadership and culture building is seen as too hard to quantify, measure and influence. But this is wrong. I’ve spent the last 15 years of my career doing and thinking about nothing but Leadership Development and we as an industry know a lot. Close to $400B USD is spent a year on leadership development so it’s not just my opinion. You can measure a leader's leadership ability within the context they are operating in. They can develop and improve as a leader. Cultures can be built and cultivated.
Take the Leadership Circle 360 degree feedback profile. Over 200,000 leaders have completed it in the last 10 years. Leaders with strong profiles strongly correlate with exceptional business performance and results. We know what great leaders do and how they operate. There are also measures of leadership maturity, based on 40 years of research into the predictable stages of development that adults can progress through. Many studies show later stages of maturity clearly correlating with increased business performance - esp in complex and ambiguous environments - sound like a startup?
How about this? As part of the investment process, VC’s should always conduct a leadership 360 and leadership maturity evaluation on the founding CEO (and team). Now you can see if the entrepreneur has the mental fortitude, relationship skills and basic capacities to deal with the environment they are entering into. Sound like something a VC would want to know about the founders before entrusting them with millions of dollars? I would.
Now, VC’s would see those leaders who are timebombs waiting to happen. Unable to grow others, give up control, adapt and essentially scale a business. They would also see those with huge potential, those who have what seem OK businesses but would use and apply capital in creative and dynamic ways to create massive amounts of value.
Further VC’s would have the tools to develop and support the leaders they have invested in. Get them targeted coaching and mentoring to keep developing and growing as humans and entrepreneurs. I’m happy to say that this is a trend I’ve been seeing in the industry so bravo! Let’s just start the process sooner at the pre-investment stage.
The majority of worthwhile innovation and job growth comes from funded startups. Job growth and innovation are badly needed right now and I’d love us to do better.
Carl Sanders-Edwards is CEO and Founder of Adeption. His focus is on democratizing leadership development. To experience one of the tools V.C.’s can use with founders we’ve set up a USD $99 Vertical Mindset Indicator trial (usually $249). You’ll get the Vertical Mindset Indicator Assessment, a Digital Debrief and group debrief. Click here to check it out.