Alignment Between Entrepreneurs and VCs


You hear this word thrown out frequently in business conversations.  It is a wonderful thing to aspire to, but very hard to achieve.  Perhaps even harder to achieve in entrepreneurial settings between the venture capitalist and the entrepreneur, where the stakes are so high and the ever-present risk of dysfunctional behavior leading to a "Start-Up Soap Opera".

Ever since I began the research for my book, I have been spending time thinking about why VC-entrepreneur alignment is so elusive.  And so when the Kauffman Foundation asked me to give a presentation to their recent class of young VCs, I decided to take the opportunity to develop a few thoughts that teed up the key issues.

In short, I concluded that despite all the aspirational rhetoric about VCs becoming more "entrepreneur-friendly", there are structural reasons why VCs and entrepreneurs are not always aligned.  In negotiating term sheets, performing the inside-outside financing dance, discussing exit scenarios – and many other elements of the start-up journey - misalignment between VCs and entrepreneurs is common, natural and inevitable.

VCs and entrepreneurs have a hard time dealing with these areas of misalignment because they are human beings.  And like nearly all human beings, they have a hard time facing conflict dead on.  Conflict makes us uncomfortable.  No one wants to be the "bad guy/gal" and so try to gloss over real differences or sweep them under the rug. 

I argue instead that VCs and entrepreneurs should explicitly acknowledge these areas of misalignment and talk about them openly and directly.  Only by naming these points of conflict and appreciating the other side's point of view, can you really begin to develop the solutions to these points of conflict.  As Mark Pincus of Zynga told me when I interviewed him for Mastering the VC Game, "Don't be a victim.  Don't look at the [conflicts and drama] personally, look at them structurally."

Anyway, here's the presentation I gave the Kauffman folks the other day that laid some of these issues out.  I still consider it a work in process (like everything I do!), so let me know what you think.

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2 thoughts on “Alignment Between Entrepreneurs and VCs

  1. Very good post. As you indicate alignment is easily said hard to achieve, even within a company never mind the investors.
    It reminded me of a post from 1 year ago
    I have always stressed execution is much harder than strategy. A few smart people can develop a good strategy. Execution requires alignment, everyone has to pull their weight (and often more)
    You suggestions about being forthcoming with misalignment has proven successful in my company. While the initial message can be hard, it allows everyone to understand where they should focus and how they add value, and finally what they can expect from others. Alignment requires trust.


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