The thing with VC’s advice
I was speaking with one of our CEOs last week, debriefing after his board meeting. His board, composed of investors, was pushing him to grow faster. Everything’s working, but can he push faster? As we talked through the key drivers and levers of his business to assess if/ where to push, I reminded him why he was getting this advice.
Here’s the thing: VCs are generally well meaning people and they want you to succeed. But, they want more. They don’t just want you to succeed. They want you to deliver a massive outcome.
This pathological desire matched with occasional potential for massive returns is the whole reason why venture capital exists as an asset class. VCs and their Limited Partners (the source of their capital) know that most investments will fail, but in the mix there’s likely something magical. Something that could return the entire fund and then some. As an early stage VC friend once told me: “I’d rather see a company go into a brick wall at a 100 miles per hour trying to break out, rather than see it plod along growing safely”.
This rote acceptance of the fact that most investments will fail is the thing that’s driving VCs to push you to grow more, faster. They want/ need your company to make up for the ones that don’t work.
Ironically, this push to grow faster and faster often is the source of failure. Your early traction is great, but as you try and triple down on it, something breaks. Maybe you push up market, chasing larger customers only to discover they buy differently or need more. Maybe you’ve just grown the team too quickly and don’t know how to make this larger organization work.
When you decide to raise VC for your business, you’re signing up to deliver a massive exit. You can’t play it safe. You can’t go slow. But, there is a fundamental misalignment of incentives that you have to reconcile as you receive advice from your investors. Remember, that investor that would rather see you break trying to achieve greatness rather than playing it safe? That investor has a large portfolio. If your company doesn’t work, someone else’s will.
You don’t have a portfolio. That doesn’t mean that you just play it safe. But there’s a balancing act to figure out. How do you push your company and yourself to the edge of performance? To the point where you do things you didn’t know you could do. But not so far that things start to break (you, processes, etc.).
This edge may not deliver the 300% year on year growth that your investors want. But it could deliver 200% with far more certainty and repeatability. In my books, that’s a much better path to sustained value creation and to seeing more companies in a portfolio actually work.
Done right, this push from your investors can be great, helping you achieve growth that might not have otherwise been possible. Strive for that. But growth at all costs can be dangerous. Too much of even a good thing is always too much.
About SurePath Capital
Based in Toronto and San Francisco, SurePath Capital Partners is the only investment bank focused exclusively on the global SMB software market. We work with sellers in this market to ensure they are funded for growth and positioned for meaningful exits. In addition, we work with buyers in this market to help shape their strategy and execute acquisitions.