I’ve been reflecting on the topic of integrity in tech and entrepreneurship and wanted to share my thoughts with the broader tech community.
I have now been a VC for 14 years and over those years, I’ve seen a little bit of everything — good and bad — from the entrepreneurial community. There are many characteristics that correlate with success in the start-up world (hustle, intelligence, vision and good luck) and if returns or big exits were the only measurement of success, then I’m pretty sure that integrity wouldn’t be at the top of that list. This “win at all cost mindset” that permeates the tech ecosystem is disturbing to me.
For me, nothing matters more than integrity. I try to take a macro-view of this life and this job and when I hang up my sneakers at the end, I want to look back and know that I played this game with the highest level of integrity — a respect for the entrepreneurs that sacrifice to win and a level of honesty and transparency in how we behave at CrossCut. I have these expectations for myself and my partners and also for the entrepreneurs that we do business with.
Why? Because winning only feels good when it’s done the right way.
I learned this from my experience in youth and collegiate athletics — respect the game and it will give back to you tenfold and I’m now supporting that ongoing mission through my involvement with Positive Coaching Alliance — www.positivecoach.org — and in the way I continue to build my career in business.
Why am I writing about this? Because I’ve had several experiences in the last year that really disturbed me and linger with me now even after months have passed. They were, in my opinion, examples of extremely poor judgment and a severe lack of integrity. As these experiences unfolded, they ended up reflecting poorly on my reputation and CrossCut’s brand, which is something I care deeply about. Our reputation and brand is all that we have as VCs.
I’ll share a couple of the stories at the highest level, but avoid the details so as not to identify the individuals/companies involved.
Story #1 — We were doing due diligence on one of the ecommerce deals in our portfolio and as part of our work, we were introduced to a potential high-profile strategic investor with deep domain expertise in the category. It was extremely helpful for us to get his input on the space, but much to our chagrin, when the syndicate was oversubscribed and he was not allowed to participate, he took the concept and went off and started his own competing business.
This is so disturbing on so many levels. Where is the respect for the entrepreneur’s innovation? Where is the respect for the unspoken confidentiality? Where is the integrity?
Despite no ill intent on our part, it damaged our relationship with the entrepreneurs, creating an unneeded competitor and a potential threat to the company’s success.
I hear of stories like this all the time — incubators/accelerators listening to pitches from entrepreneurs and then magically starting something quite similar with their own internal teams. I fully believe that ideas are a commodity and that it’s all about execution, but it would still be nice to see some respect for the ideas!
Story #2 — We had a signed term sheet to lead an investment in a local LA start-up and were 3–4 days away from closing the transaction. To my complete surprise, after a few days of slow-rolling the deal documents, the entrepreneur called up to say that they “were going another direction” with their financing. While legally they didn’t do anything wrong, it was the first time in my VC career that an entrepreneur had acted in this way and it, obviously, left an extremely bad taste in my mouth.
When I sign a term sheet, I take my commitment to fund the business very seriously and I consider that document to be the representation of our mutual desire to work together to build an incredible company. I look the entrepreneur in the eye and ask very directly, “Are you ready to go to war together?” While not a legally binding document, it is a symbol of my commitment and promise to be the entrepreneur’s partner — in success or failure.
And, by the way, I am all for entrepreneurs pursuing their best options — valuation, partner fit, size of round. I just believe that you should exhaust those options before you sign a term sheet.
In this case, it is just a deal that got away — no big deal. But, it is emblematic of the mindset of this current funding environment and the types of poor decisions you can make when you are either getting bad advice or just inexperienced.
I counter this example with the ultimate display of integrity. One of our current portfolio companies signed our term sheet to have us lead their seed round of financing. They proceeded with their already planned Silicon Valley trip and came back with offers that were greater than 2X our valuation. To the entrepreneurs credit, he stuck to his word and moved forward with our financing and has had great success in raising his Series A and a pending Series B. This gesture was not taken lightly by the team at CrossCut and we hold him in the highest regard. He is a high-integrity individual and the kind we love to be partnered with.
My advice to all entrepreneurs — your career is long. There are no shortcuts to success without ramifications. Build your career and act in a way that you and your children can be proud of. While you may find “success” by doing things the wrong way, it will feel cheapened and deep down, you will know that you didn’t do it the “right way.”
As in Sports and so in Tech, play true — play with integrity.
by Brian Garrett — Co-Founder of CrossCut Ventures
Posted on 09/21/2015 at 06:00:00 AM