“As A VC, you have to live with entrepreneurs’ weaknesses.” – Neil Shen
The name “Neil Shen” may not seem familiar. Yet, he’s a regular feature on the Midas List, Forbes’ annual ranking of the best Venture Capitalists worldwide — which he is topping again in 2020 for the third year in a row, no small feat at this level of competition.
Having led Sequoia’s early-stage investments in Alibaba, DJI, Ppdai, ByteDance, and many others, Shen has secured a net worth estimated at $3 billion. He’s spearheading VC’s foray into China.
In a 2015 article published in the Financial Times (see the link below), Shen was talking about many Chinese entrepreneurs’ tendency to lower prices to lure customers, thus dangerously hurting margins, when he said:
“When you identify an entrepreneur to back, you have to live with their weaknesses. You reason with him, you argue with him, but you seldom go against the entrepreneur.”
That’s golden advice for all investors out there, especially early-stage ones. There could be an urge to micro-manage Founders they back, especially if these VCs were entrepreneurs.
But it is not how Venture Capital works.
On top of potential legal liability (many countries have their version of “de facto management” as illustrated in the Trados case), investors are exposed to damaging their relationship with the entrepreneurs they back.
It is why early-stage VCs insist so much on the quality of the team in the investments they make. They look for ability, but also an ear for good advice. The best entrepreneurs are masters at walking the fine thread between being stubborn and obsessed enough to succeed against all odds but sifting through the noise to learn from legitimate advisors.
Top VCs such as Peter Fenton are known for exercising influence at the Board level with a non-confrontational style. It’s one of the best practices we highlight in our SMS-based course on Startup Boards.
How do you test entrepreneurs’ ability to listen before investing with them? What are your Board tips and tricks?
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Learn more about Neil Shen in this Financial Times interview (2015).
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