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Darth Vader: Venture Capitalist

I’ve been through a number of start-ups and friends of mine are still toiling through theirs. And although I have rejoined their ranks as a CTO in a research-oriented startup I don’t miss the turmoil associated with trying to please investors, customers, and employees all before you have a product. Especially when it seems that you don’t get to include yourself in that mix of who has to be pleased.

Like most geeky types I’ve been watched the Star Wars series repeatedly. My kids watch the original three at least twice a year, with my son and I’ve come to notice something: Darth Vader is a venture capitalist.

Now, you may think me nuts — I’ve been called that before, usually before heading off on another start-up adventure 😉 — however, hear me out. When you listen to Darth Vader motivating the troops or attempting to get the upper hand on the competition (i.e., the Rebel Alliance), he speaks like a seasoned venture capitalist. I’ll provide some examples although this may mean you can never watch the Star Wars saga in the same way again.

On Deals

I am altering the deal, pray I do not alter it any further.

When you’re dealing with an investor and you need the funds to survive you are at that investor’s mercy. Regardless of how pleasant an individual that investor may be the fact remains that the structure of the deal and the clauses that affect you are dictated by the investor. The personality of the investor will adjust the deal slightly but it will still be in the investor’s best interest. Aggravating an investor will only make them alter the deal more in their favour. Complaining too loudly about a modification to the deal will result in something akin to Darth Vader’s quote, above.

The Two Strikes Rule

Don’t fail me again.

VCs don’t give you many chances. If you’re lucky, you’ll get more than two. Usually, though, you’ll get exactly two. And if they’re in a sour mood because of another investment or the general market you’ll get exactly one chance to be right. If not, they’ll be sure to let you know of how many chances you have remaining — if any.

Good Cop, Bad Cop

The Emperor is not as forgiving as I am.

Believe it or not, VCs come in various temperaments. And they’re smart enough to ensure the nicest ones typically deal with you directly. However, the threat of the big boss remains. And it’s not that the big boss is unusually difficult or mean-spirited, it’s just that he or she is just sufficiently senior as to not have to put up with crap. Plus, the downside of an investment is a downside to their personal fortune — something they don’t take kindly to. Poor performance or aggravating the junior VC only means that you’ll hear, sooner or later, from the senior VC. And that won’t be fun.

Drinking the Kool-Aid

I find your lack of faith disturbing.

Perhaps the most frightening aspect of running a start-up is the feeling that the investors have lost faith in you — or your technology. Well, there is one thing that is worse. That is if they believe you lack the focus or belief in where the company should go.

There are typically three outcomes to this lack of faith in your abilities. First is outright dismissal. Second is demotion. Third is remaining in charge, but having every decision double-checked. Which is worse? Who knows. They all suck to various degrees. But once you lose investor confidence it’s hard to get it back.

Uber-Geeks

Impressive. Most impressive.

Just as Darth Vader was impressed with Luke’s lightsaber, so, too, are VCs impressed with cool and interesting technology. Unfortunately, cool technology doesn’t imply success. In fact, the best technology rarely wins. So winning their approval with respect to your technology is one thing, but winning them over with a solid plan is something else entirely. Without a solid plan and the right people to execute against it, you’re lost.

The old adage of people, product, plan remains the truest form of a start-up. Good people executing a plan against a viable product. But the product need not be top-notch, it just needs to be good enough. However, VCs do appreciate elegance and cool technology, none-the-less.

Plans

I want to know what happened to the plans they sent you.

When you’re running the show you need to execute against plans. Various departments send you their plans and you need to ensure that everyone is marching in unison towards a common goal. The VCs will be very particular about this. Executing against a plan means you’re handling their money properly. If you’re not executing against a plan — or, God-forbid, don’t have one — then you’ll be in a sorry state. Now, you can change the plan but you need to understand that you need to keep the investors informed as to what the situation is with respect to the plans, where you are in terms of the plans, etc.

An inability to adequately define your progress with respect to the plans is just plain bad.

Merger and Acquisition

Join us or die.

When you have a lead product or are seriously threatening a competitor it isn’t that uncommon for their investors to come calling. The meetings are cordial but there is an underlying threat, especially if they’re bigger than you are or are better funded. In either case, Darth Vader’s warning is apropos. Regardless of what you think, the better part of valour is typically joining the enemy — especially if they’re poised to rip your head off.

Motivating the Troops

Perhaps I can find new ways to motivate them.

Ah, motivation. This is always a problem. There are classic beliefs like money is not a motivator, but is a great demotivator. However, the fact is that each individual needs some level of motivation. A lack of motivation within a start-up will bring down the ire of the investors. Much as Darth Vader was less than pleased with the progress on the Death Star so too an investor will be less than impressed with your motivational skills if your company falls behind schedule.
If the investors begin to threaten to take the reigns of the company it is already too late as they’ve already discussed the lack of progress and have formed an opinion that you can’t make it as a senior executive. You don’t have what it takes to motivate others to follow you.

By the way, the best way to motivate someone is for them to respect you. Being chummy with them isn’t going to get you anywhere. I always said that when I walked into the office I had neither friends nor relatives within the confines of the office. It wasn’t to be a smart ass or a hard ass, but instead to be fair. Everyone had to realize that I respected their capabilities and they had to respect my decisions. If I were to make a decision everyone knew it wasn’t tainted by past friendships or relationships. It allowed me to make a decision and see it to conclusion.

However, it doesn’t imply that you can’t make mistakes. Those are expected — and allowed. The way you handle mistakes is what makes a leader. Take blame when appropriate and lay blame when required. And when there is praise, heap it upon staff where it’s due. You helped herd them in the right direction, but it was the staff that got the work done. Without them you’d have gotten nothing done! Few senior managers remember this fact. Forgetting it will likely lead to a revolt and a subsequent visit from the VC to remotivate the employees!

It’s Over

You have failed me for the last time.

When Darth Vader uttered that threat you knew it wasn’t hollow. Similarly, when an investor has had it with you or some other member of the company their time is up. Investors aren’t in the business of being nice and offering an endless supply of chances. If you prove yourself inept you will be removed. The only reprise would be if the investor feels you can still offer the company something. But usually the motion is out the door. The interesting side effect of eliminating someone is that more than just the investors have noticed that the person hasn’t been performing and so the overall morale and motivation of staff goes up.

This increase in morale when someone is let go happens even when other employees are let go. People despise pulling their weight plus that of someone else. Letting someone who can’t meet their obligations go is good for the company and good for the psyche’s of the people within the company. It shows everyone that you value them and their efforts.

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May 2011
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