I have a simple question: do funders treat entrepreneurs as well as they ought to?
Our entrepreneurs have shared stories of funders committing to giving them funds and then pulling out at the last minute without even offering a good reason. I’ve heard of funders committing investment and then disappearing without a trace for six months. I’ve heard of funders bullying some of our entrepreneurs into bad valuations and pressuring them to give up a focus on impact to deliver higher returns. I’ve personally had funders tell me 45-minutes after a meeting was supposed to start that they couldn’t make it anymore, with no explanation and no real apology. I’ve had funders cancel meetings on me after I traveled to other cities to meet them.
For the most part, the funders I’ve worked with have been delightful and I couldn’t be happier to have their support. But I hear these stories so often that I have to ask: why is this happening? Must we take action?
Entrepreneurs don’t have a portfolio across which they can diversify their risk. Tweet This Quote
I recognize, first, that it’s really hard to be a funder. Funders make high-stakes decisions about things they often don’t know much about (see Paul’s Graham’s essay on fundraising). They are objectified—entrepreneurs see them as dollar signs, rather than human beings. And it’s deeply discouraging to put money into a company and lose your investment.
And, in my opinion, it’s harder still to be an entrepreneur. Entrepreneurs don’t have a portfolio across which they can diversify their risk. And if they fail, they aren’t only deeply discouraged, they are also unemployed with no savings and a lot of debt.
The best funders recognize all of this and make treating entrepreneurs well a priority. Those are the funders, in my experience, who win the best investments over time. Just as funders do, entrepreneurs talk. They learn about funders and what it’s like to work with them.
Here’s how the best funders do it:
Treat Grantees and Investees as Customers.
I really admire the approach that the Peery Foundation takes with their grantmaking. They hold themselves to the same standards they hold their entrepreneurs to. They ask for feedback from their grantees on how they can be a better grantmaking organization. They accept materials grantees already have for diligence. They agree to existing reporting structures, rather than creating new ones. They meet at grantees’ offices, rather than their own to save grantees time. They see themselves as in service to people changing the world, rather than entitled to call the shots because they hold the money and the power.
Restricted money makes the asymmetry of power between a funder and an organization worse. Tweet This Quote
And, because entrepreneurs (whether they’re for-profit or non-profit) talk about which funders they’ve worked with and how their experience has been, the Peery Foundation probably attracts more and more of the best entrepreneurs in the world (especially the ones who have been burned by other investors, funds, or foundations).
Provide unrestricted funding.
Money in all forms is helpful, but, as Kevin Starr articulates in this Stanford Social Innovation Review article, restricted money makes the asymmetry of power between a funder and an organization worse. “I suppose that many worry that if they give an organization unrestricted money it will be wasted or used inefficiently. The solution is pretty simple: If you don’t think an organization is smart enough to use your money well, don’t give them any.” If you trust your own due diligence and want to give the people you bet on the confidence to make the decisions they believe they need to make, give them unrestricted funding.
Treat entrepreneurs like people, not deals.
Treat entrepreneurs like people, not deals. Tweet This Quote
“Don’t treat entrepreneurs as deals, treat them like people,” says Mick Hagan. Do the little things you’d expect an entrepreneur to do. Show up on time to meetings, communicate early if you need to cancel, apologize if you have to reschedule, and take the lead on making sure the next meeting happens. Recognize especially that you’re interacting with human beings who are putting their whole lives on the line to make their venture work (and that might mean sleeping on couches, living in their parents’ basements, taking no salary, eating ramen noodles, and contending with swarms of doubters, including themselves).
Say no as fast as possible.
We’re privileged to have Venture Capitalist Seth Levine on our board. Seth and his partners at Foundry Group abide by the simple philosophy of saying no as fast as they can. Nothing is worse for an entrepreneur raising money than being strung along.
Nothing is worse for an entrepreneur raising money than being strung along. Tweet This Quote
I’ve had funders dangle money in front of me for months and months, indicating openness to a discussion or interest in talking, without committing. And then after half-a-year of dozens of emails, and several conversations, they explain, “we can’t make this a priority right now.” It’s fair for a funder not to prioritize a funding opportunity, but out of respect for the entrepreneur, say no as fast as possible, so they can focus on funders who can support them.
Out of respect for the entrepreneur, say no as fast as possible, so they can focus on funders who can support them. Tweet This Quote
The tension between funders and entrepreneurs (whether funding is happening through for-profit vehicles or non-profit vehicles) has long-been a sore spot and hasn’t disappeared for decades. However, it’s got to start with open and honest discussion and brave funders, like the ones above, who exemplify admirable practices that make us all better, funder and entrepreneur alike.