Accountability in VC

Bilal Zuberi writes in his thoughtful post on “Learning as a VC”:

I am quite surprised why I still feel so many VCs still keep ‘faking’ it. Maybe its because VCs unfortunately get put on high pedestals of startup scholarship very quickly, regardless of their backgrounds. And then they feel they have to keep up the appearances instead of exposing a more vulnerable/imperfect side.

Maybe. But I think the ultimate cause is a deeper and more chronic problem: the lack of accountability in VC. This lack of accountability pervades VC and we witness it in different manifestations:

• Accountability for behavior: As in other similarly skewed power dynamics, VCs wield considerable power (control of funding) over others (unfunded founders), and much of their interactions occur in private or 1:1, with little to no oversight. It’s no shock that VCs have been swept up in the tsunami of sexual harassment scandals.
• Accountability for performance: Anybody ever see that table of individual VC partner financial performance? Or the detailed performance stats backing up those “Midas List” selections? I thought they were around here somewhere…. perhaps they slipped behind the couch.
• Accountability for knowledge: This is what Bilal is talking about above, I’ll discuss this in a moment.

After two decades of working alongside (under?) VCs, and four years of being a VC myself, it’s pretty clear to me how “fakers” can get away with it for so long.

To illustrate, here’s a metaphor or hypothetical litmus test: Imagine a podcast about professional baseball players. Each episode features a different player speaking about his professional activity: his origin story (how he made it to the big leagues), his approach to playing his position, some of his greatest “hits” or accomplishments, and perhaps some failures if he’s humble. Imagine that podcast, with a single constraint: you are not told, and are not able to discover, whether the player is a career .199 hitter or a .340 perennial All-Star, a future Hall of Fame or a bench-warming backup. There is no public information available about his stats, nor is he able or willing to share them. Somehow it’s all a big secret. Wouldn’t that change your perspective towards the podcast, or any given episode or guest?

Now listen to a typical VC podcast. I have nothing against the hosts, I know some of them personally. I enjoy listening to them regularly. I learn much from them. I have been interviewed myself. But as these VCs parade up and down the podcast podium, do you have any clue if they’ve individually even returned capital to their LPs, let alone consistently generated profit? There’s no mention of record, of performance. Those details are not public or published and are kept safely confidential. Most VCs sound really smart. I imagine most major league pitchers, too, can speak intelligently about their craft, their strategies, their great moments. But was the guy 20–4 last year with a 1.98 ERA, or was he the fifth starter in the rotation who spent half the season in Triple AAA Podunk? You’d want to know that if you’re listening to a pro player talk; there’s little way to know when listening to a pro VC.

VCs can say and do almost anything because accountability, if there is any, is so long-term and elusive. Poorly-performing (or behaving) politicians don’t get re-elected, executives get fired. Being a VC is close to tenure — fund lifetime is typically ten years, with some extensions, so even your LPs won’t know if you were any good for a long time. “Most startups fail” excuses your misses. Most funds have multiple partners and make decisions collectively so it’s harder to pin success (or failure) on one individual. Build a good “personal brand” and LPs will back you in your next fund even if your prior fund goes bust, if they feel that you were the “star” and the prior fund’s failure was others’ fault (you’ll help them to “understand” that, of course).

If accountability between VCs and their own LPs is so low and long-term, accountability between VCs and the outside world, primarily founders, is even lower. Hubris is the norm rather than the exception. For example: who ever back-checks if a VC’s “market predictions” panned out or not? Who ever notices if a VC blogs one contention, and then a contradictory contention later? (I once respectfully wrote to a colleague asking him if his two posts didn’t contradict each other and the response, aside from being ridiculously ridiculous, indicated that fielding such a question was a very bewildering and novel experience for him.) And even if a VC was obviously “wrong” with a pick, prediction or market analysis, failure and being “wrong” are so prevalent in tech and VC that it would hardly be viewed with the same scorn as in, say, entertainment or politics. It’s hard to think of another industry where the conditions for hubris and “faking it” are so ripe.

Bilal is right: when you become a VC, founders tend to put you on a pedestal and treat you like you’re smart, and a healthy human brain enjoys that feeling and is susceptible to running with it. (“Hey, yeah, I really AM smart….!”) I knew it would happen to me too — when i founded Jumpspeed with a tiny amount of money from three LPs in late 2013, people who didn’t know me or how small my “fund” was (and better, people who did know me and had never previously treated me with much deference) suddenly started to speak to me differently. I was a VC. I must be (or have suddenly become) smart. That feeling starts to slide on like a well-fitting shirt and after a few weeks you can start to believe it yourself. I’d like to think that I was prepared for that false “pedestal” sensation and that I’ve fended it off — perhaps to an extreme. (Some have told me that I’m way too self-deprecating, and if so, this is one reason why.)

Being put on the pedestal, as Bilal notes, is a catalyst for “faking it.” But what allows “faking it” to persist and fester is the underlying lack of accountability throughout the VC professional experience.

So while I think Bilal’s suggestions about facilitation by founders and fear of vulnerability contribute to VC “fakeness,” I think the main reason VCs who “fake it” fake it, is because they CAN. There’s little immediate downside, repercussion — or accountability.

We in the VC community need to be much more vigilant and self-regulating, holding ourselves accountable to higher standards of integrity even in cases where (we might think) we could get away without it. I believe VCs need to adhere to a very strict and articulated code of personal and professional conduct (countering lack of accountability for behavior resulting from the power dynamic). I recognize that public transparency about performance will probably not happen for many reasons (confidentiality, difficulty in measurement and definition, etc.) but at the very least VCs should be transparent with their LPs throughout the fund cycle and not just via fluffy reports about up-rounds and on-paper IRRs, and should be more modest or open with the outside world about their performance-related “accomplishments” and “success.” And we VCs have to strive to be more intellectually curious, as Bilal notes, and humble and honest about what we know, and what we don’t know.