The best founders don’t care if an investor is “founder friendly”

For years it’s been fashionable for investors to compete on the basis of being “founder friendly.” This is of course a messaging strategy: Investors succeed by returning lots of money to their LPs, and a subset of investors do so by winning deals on the basis of having a more “founder friendly” reputation than their competitors. 

There are a lot of reasons why this isn’t great. I’d rather have an investor who will help us all win than an investor who doesn’t negotiate as hard on their ownership or an investor who doesn’t need a board seat. Maybe demanding a board seat isn’t “founder friendly” in the short-sighted sense that founders keep all the votes, but the founder and the investor will get a much better outcome if the investor takes a board seat and is a terrific board director. 

The longer a founder is in the game, the more they learn the “real story” on investors by doing backchannel reference calls and listening to stories at founder dinners. These real stories are always about how they showed up at a difficult moment, gave key advice given during an inflection point, and honored their word when it was easier not to. They’re never about how some investor proactively suggested a two-tiered stock structure.

Founders want to raise from investors who materially improve their chances of success, and if they think they’re getting one, they do not and should not give a shit whether the investor is demonstrating their “founder friendliness” by volunteering to give up their pro rata right. We are going into business together for the long term, and I expect you to make sure you get what you need to make this work for you over a long period of time.

I do not want to cram you down at the next round so that someone else can take all of it, you can mentally check out because you no longer have enough ownership, and I am running the company by myself. I want this to be an ownership position for you where it had better fucking work. And then when I hear in your voice that you’re frustrated with how the quarter went, I know it comes from the right place: A place of needing this to work just as much as I do.

Founders want to win so badly they put themselves in an all-in position. The traits an investor can demonstrate that make them irresistible to founders are: (1) A track record of winning, (2) a deeply-held, thoughtfully-justified belief that this business will be a winner, and (3) an unbroken history of high-integrity behavior when the chips are down. Founders want investors like this to have fair terms that give them a meaningful stake in the outcome and a real say in making that outcome happen.

Finally, a generation of “founder friendly” discourse runs the risk of teaching new founders that investors competing for their hot deal is their birthright. I’ve seen young founders get caught up in competitive fundraising dynamics and internalize the belief that they should just get the most lopsided terms possible and do whatever they want afterward. 

This sets them up for a painful lesson later: As a founder raising money from investors, you are proposing to go into business with someone for a very long time. It will not be all sunshine and roses, and if you treat your investors like commodity cash providers, you will not be able to depend on them when you need them. Most importantly, we are all humans sitting around a table forming a partnership together to build something that lasts. These relationships matter. When you shake their hand, you are making a personal commitment. It’s up to you to make that mean something.