Pitbull’s Venture Advice

There’s a line in Pitbull’s Feel This Moment song that goes like….

As it turns out, there is actually a psychological phenomenon to describe this paradox of asking for advice and its called the Advice-Seeking Effect. Conventionally, asking for advice was seen as a sign of incompetence. However, a study by Brooks et al. (2015), titled Smart People Ask for (My) Advice: Seeking Advice Boosts Perceptions of Competence, found that individuals who seek advice are considered to be more competent than those who do not.

Of course, who you ask for advice matters, and this is something the researchers acknowledge in their study as well. In their fifth study, participants were asked to identify subjects they considered themselves knowledgeable in, and areas they considered to be of their weakness. The results showed that asking for advice increased perceptions of competence only when the person being approached considered themselves an expert in the subject. When the person considered themselves a non-expert, asking for advice actually decreased perceptions of competence.

Well, VCs are a natural place to start, given their extensive experience evaluating startups and making investment decisions. By asking for their advice prior to officially fundraising, you will be better positioned to obtain a better understanding on areas that needs improvements, what investors look for in startups or founders, and most importantly you can grasp what it will be working with a specific investor (if they end up on your cap table).

To put it into perspective, say a VC fund has expertise in GTM and you walk them through you startup, there’s a high chance of you receiving practical feedback on your customer acquisition strategy, sales process or distribution channels. Also pay attention to how the investors bring themselves during meetings with them. Make sure you observe if they take the time to understand your business before offering suggestions. If they provide tailored advice grounded on their expertise, that will at least move the needle as opposed to advice grounded on conventional wisdom.

Here’s how I would put it

That’s why identifying value adding investors is very important. Most recently, Nik Storonsky shared with David Senra, on the latter’s podcast how one of his investors tried to pressure him into firing his best employee because he was supposedly too hardcore. Nik then refused and explained the experience shaped his view that some VCs, particularly those with significant influence but limited operational experience, can be dangerous for a company. He eventually removed VCs from Revolut’s board, preferring to have experienced operators involved instead.

There were other occurrences with VCs too. Vinod Khosla publicly called Factory AI, a startup backed by his firm Khosla Ventures, a “struggling second tier competitor” as his firm also held an investment in its rival, Cognition. The comments came amid a dispute involving Factory’s board adviser, who later joined Cognition. Regardless of which side of the dispute you agree with, this raises questions about investor alignment, and how VCs handle conflicts involving their portfolio companies.

This is exactly why founders should evaluate potential investors before accepting their money. Get to know how a VC responds when you disagree with them, how they handle conflict of interest, if they respect your judgement as a founder, or if they are inclined to influence operational decisions simply because they have invested in your business. When you understand these earlier, you will be better positioned to avoid conflict of interest or have VCs as sleeping partners.

After all, cap table management is fundamental, so pay attention to who you let in!