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Should your startup get funds from someone who hasn’t been a founder?


Vinod Khosla, famed investor in Indiegogo, Storify, Jawbone, and more, went on stage at TechCrunch Disrupt 2013 and said: “95 percent of VCs add zero value and 70 to 80 percent of VCs add negative value to a startup in advising you.” The statement was met with a huge round of applause by a room full of hundreds of entrepreneurs in the room.

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At the StartMeUp event in April, Singaporean investor Jeffrey Paine also told us that “you shouldn’t listen to anybody who wasn’t a founder. Only founders understand founders.” These bits of wisdom come from investors from San Francisco to Singapore. But does anybody take this advice?

Funders ousting founders
It’s always a shaky relationship between founder and funder. The founder starts out with their own dream of what they want their startup to be. The dream could be small, like a piece of software to help a few schools, or big, like being the biggest e-commerce site in Southeast Asia.

These founders come young, humble, and desperate for money, and the investors come in and “save” them. Once money is involved, the investors want things to go their way. This is understandable, of course – who can blame the guy who signs the cheques for wanting a little influence? Everybody has their own vision for what the startup should be. A clash emerges.

In many cases, this clash doesn’t end well. In the movie, you can watch in vivid detail how Kaleil Tuzman slowly gets ousted by his investors and co-founders as he struggles to build his company. This is even more clear in the movie Something Ventured, where we see almost every founder get muscled out by investors within their startups’ first year. That includes big names like Cisco and Fairchild Semiconductor.

Founders with guts
It takes a founder with guts to keep the vision strong and build the company he or she wants to create. But a common complaint among investors is that founders don’t listen enough. Founder of Khosla Ventures and former CEO of Sun Microsystems, Vinod Khosla once implied that a delicate balance of listening and not-listening is required, stating:

Knowing whose advice to take and on what topic may be the single most important decision an entrepreneur can make. And this is what I tell entrepreneurs: listen politely and do what you want.

In the midst of this, the founder needs to keep investors happy, which requires a deep voyage into understanding what the real value and purpose of the startup is. Without this proper balance, the natural stubbornness all founders are endowed with is all for naught.

Two schools of thought
Investors in emerging markets like Asia are quite different from Silicon Valley investors in that a majority of them come out of finance backgrounds. In the Valley, folks like Khosla Ventures and Google Ventures, clearly have a background in technology and startup. Peter Thiel, from the Founder’s Fund and Valar Ventures, was himself a co-founder of PayPal. Most of the investors in other parts of the world may not have this kind of successful background as entrepreneurs.

Consequently, there’s two main schools of thought perpetuated by investors and startups. One school follows the Valley model of being hands off, and letting good founders run. The other side is more worried about how their money is being used and less trustful of founders.

But are these investors really capable of advising startups when they themselves don’t have any background in successfully starting up a company?

This article by Anh-Minh Do originally appeared on Tech in Asia, a Burn Media publishing partner.

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