Pivot perspectives: When is risk mitigation a "bad" thing?
When you're trying to raise money, apparently.
I attended a couple of events last week, both focused on women, and was struck by two seemingly conflicting threads. At one event, featuring a panel of women VC partners and talking about the generative AI space, the investors seemed to concur that they would only invest in a company if the founders were sufficiently “committed.” Meaning, they were not building their start-up as a side hustle or while trying to hold down a “real” job that paid their bills.
Of course, my immediate thought was about how unencumbered at the least and, more likely, how privileged you have to be to be able to do that.
It’s not that I don’t get the perspective. Thinking back on my own entrepreneurial journey, BlogHer started as a side project (the first BlogHer Conference) and then became a company that Lisa, Jory, and I worked on while still serving other consulting clients. One year in, we agreed to let our clients go as their contracts expired, and we continued bootstrapping but now worked only on BlogHer. We did not seek external funding for BlogHer until we were two years in and one year into fully focusing on it.
That wasn’t easy for any of us. I often tell the story of how I wiped out my life savings and had a $50K HELOC I took out, which made it possible for me to not pull a paycheck for two years. Our first round of funding truly came just in the nick of time.
Personal financial risk aside, I still had a safety net beyond that…I grew up in the same area where I was living and had parents and siblings close by. I felt pretty confident that if everything fell apart, I wouldn’t end up unhoused. I also had no children or other dependents for whom I was responsible.
Because my experience evolving from project to bootstrapped company to venture-backed start-up was fruitful, I’ve often recommended that people work on a project or labor of love with people before agreeing to co-found a company. It’s essential to learn one another’s working styles and ability to talk about both good and challenging circumstances. I think it was smart of my co-founders and me to do that, and it’s smart for others to do something like that too.
The conflation of being 100% focused and being “committed” can’t help but bug me. Being “committed” doesn’t pay your rent, and it doesn’t take care of your elderly parents, and it doesn’t cover childcare, and it doesn’t provide healthcare.
I don’t think it’s fair to judge those who need to mitigate the inherent uncertainty and risk of putting a start-up into the world. Moreover, any pivot, even to another function or industry, comes with a different risk…the risk that you won’t like it as you expected to. Of course, you can always change your mind; you can always make a U-Turn or at least take an off-ramp, but, again, your personal financial circumstances may make any such change of plans back and forth more risky.
Risk mitigation is admired under the “right” circumstances:
Risk mitigation is the rationale for all sorts of actions that benefit investors and top shareholders…layoffs are often positioned as mitigating the risk of uncertain macro-economic factors, and Wall Street loves a “good” layoff.
Mitigating the risk of losing your healthcare or your ability to pay for your kid’s college seems like an equally rational decision to me.
Author, entrepreneur and bookstore owner Fran Hauser was a recent guest on an Optionality webinar, and talked about how she gradually shifted to her new, independent portfolio career for a year while staying in a lucrative and high-level executive role…both to mitigate risk, and also to make sure she enjoyed the life she was imagining creating:
This sounds eminently reasonable and smart to me.
The second women-focused event I attended was populated with women who had real and costly life commitments. Certainly, some had nest eggs and cushions and the financial wherewithal to start something and focus on it 100%. But many did not. These were experienced women, expert multi-taskers and jugglers, and seasoned enough to feel a passion and purpose for what they were working on.
The kind of women I’d bet money on, in other words.
But VCs? Probably wouldn’t.
The value of being venture-funded qualifies as a mythos here in Silicon Valley (and the mythos has spread). If there’s one thing I wish more intrepid creators and coders and thinkers and doers knew, it’s that the mythos is just that, “a set of beliefs or assumptions.” Most of the entrepreneurs I meet and talk to could find other ways to get their ideas off the ground. And once off the ground, they would have even more options and even more power in whatever negotiation lies ahead.
At some point in every conversation with an entrepreneur about funding I ask them, “How much money do you really need to get to your next meaningful milestone?” Not to have a 2-year runway. Not to hire more full-time C-level expertise. Not to get some fancy P.R. wins. The next important product or business model milestone.
Because once you hit that milestone, you’ll either a) have more leverage in any fundraising you undertake or b) realize you can hit the next milestone without fundraising too.
Ironically, once an entrepreneur has justified the need for actual venture backing (of course, some companies and industries are much more capital intensive…hardware, biotech, semiconductor, CPG, etc.) I’ll be the first to ask them how much they want to raise…and tell them to double it.
Because fundraising a) takes longer than you’d ever imagine and b) takes you away from actually running your company and building your product/service. You don’t want to have to turn around and raise again shortly after closing a previous round. Not just for valuation or dilution reasons, but because it’s just so challenging, and it pulls focus.
Look, even if all-women founding teams only get 2% of venture dollars (a stat that hasn’t changed since BlogHer raised its first round in 2007), that’s still billions of dollars out there that could have your company’s name on it. By all means, go and get that coin if all signs point to it being necessary and warranted. However, if you already know that you are more likely to have challenges raising money the VC way, and you know that they carry this definition of what “committed” means in their pattern-matching guts, you might want to mitigate your risk of wasting precious time and energy by re-thinking your assumptions and acceptance of the VC mythos.
And yes, I still do entrepreneurial coaching and advising, including 30 minutes free for anyone in my network. 💪🏼
Does my experience ring true for you?
My latest for Optionality:
Optionality’s March webinar is two weeks from yesterday and will honor Women’s History Month by talking about building services and platforms and products for women, even as women are not some monolith who all want and need the same thing! RSVP here:
https://us02web.zoom.us/meeting/register/h_jHSIikTuSHztaWi8zrcg
E, more than ever now this piece resonates. I was a bit surprised the messaging around 100% commitment came from Pivotal, an organization that truly supports women and working differently. It seems the entire VC establishment is bought into this notion of full-on risk. You, Lisa, and I took that risk, and you and I don't even recommend it as THE WAY to grow a company.
I recall being up in arms over a Jason Calacanis piece that indicated (and I'm paraphrasing) if you weren't willing to live to work on your pre-funded startup in Silicon Valley, out of your car, if necessary, put up your house (or something else) for collateral and go into debt, you didn't have what it took to be a founder. I called some serious bullshit on that.
I worked with an intrepid serial female founder who got a big break being invited into an incubator that would have required her to leave home and live Real-World style with other founders for 3 months. She turned the opportunity and funding down. She didn't want to be away from her school age kids for that long. Her comment to me: I'll figure out some other way.
Yes we will.