I recently had a chat about team performance with the portfolio group at a leading European fund. They said: “Sometimes, a team does not work. Then we have to understand who to fire so the rest can move on.”
The conversation left me thinking: “Shouldn’t the question be the other way around? Shouldn’t it focus on how we can identify a way to make the team work again? That's more meaningful than pointing to one person that seems to fail the team at this moment.
Then, as I was reflecting on similar conversations I had over the past few years. A much broader question surfaced: Does venture capital have a mindset problem?
Finding and removing one non-performing player in a team is easy. Enabling every team member to perform at the top of their game is much harder. It is far more complex than the sum of the individual's personal growth: Many team constellations could work in the future. For investors, evaluating all these options takes a lot of time. And it is time, not money, that venture investors treasure the most.
A VC with a fixed mindset can’t help a management team get into a growth mindset. They don’t view the team as people to be developed, but rather as people to be judged and kept or terminated.
— Derek Pilling
Most investors understand the concept of growth mindset. Still, the lack of time and attention thwarts them to employ a growth mindset in their portfolio. This leads to bad founder support, especially for the low performers in the portfolio.
Growth is a conversation
Developing a successful team takes time and attention. Therefore, the most powerful question you can ask is: What do you need to succeed? I call this the “growth question,” the starting point of all good growth conversations. It unleashes tremendous power, clarity and creates a climate of trust — as long as you take the time to listen to the answer.
Growth vs. fixed mindset
The concept of a growth vs. fixed mindset is the best way to understand this paradox: Stanford psychologist Carol Dweck identifies two basic mindsets that people adopt; the fixed and the growth mindset.
Individuals who believe their talents can be developed (through hard work, good strategies, and input from others) have a growth mindset. They tend to achieve more than those with a more fixed mindset (those who believe their talents are innate gifts).
— Carol Dweck
The venture path is all about growth: The development of individuals, of a team’s capacity, a company's impact, and its financial success. Due to its inherent risks, venture is very much about speed, focus, and making hard choices.
These risks make us want to intervene, even if we do not know the solution. I like to believe that we can consciously engage a growth mindset. We can turn it into a practice rather than a fixed personality type.
Embracing growth means embracing the risk of venture. Ask: "what does it take to make this work?" It helps you to put the founder in the driver's seat, start a learning conversation and generate trust.
Time — not money — is an investor’s scarcest resource.
Venture funds have asymmetric returns: A seed fund needs to diversify its bets. A typical portfolio counts around 25 companies. Only a small number of them will generate the majority of the fund’s return.
Yet, starting out, every single company has what it takes to “return the fund.” As the fund’s portfolio grows, the challenge becomes: How will investors manage their attention? They do not know where this outsized success might come from. So they have their eyes everywhere and cannot “spend” too much attention on one.
Back to the math of portfolio construction: 25 companies means more than 50 founders. Worse, it means ever-changing team constellations. Even for firms with many partners, an investor might sit on up to ten boards at the same time. I can tell you; ten boards take a lot of time in your calendar. Time that you would need to engage with individual teams. That means: You often have to simplify team decisions by making assumptions about individuals without context.
This is how a fixed mindset manifests in your work. So what can you do?
The best investors understand growth as well as focus.
It is important to understand that you do not “have” a growth mindset. We carry both a fixed and growth mindset within us. We can choose to act from either, at any point in time. Admittedly this demands self-awareness: We need to understand what triggers our fixed mindset behavior. Then, we need to commit to the deliberate practice of employing a growth mindset.
What does this deliberate practice entail? Geoff Colvin writes in his book Talent Is Overrated:
"Deliberate practice is hard. It hurts. But it works. More of it equals better performance and tons of it equals great performance. (...)
Deliberate practice is characterized by several elements, each worth examining. It is activity designed specifically to improve performance, often with a teacher’s help; it can be repeated a lot; feedback on results is continuously available; it’s highly demanding mentally, whether the activity is purely intellectual, such as chess or business-related activities, or heavily physical, such as sports; and it isn’t much fun."
So, now what?
Turn your founder support into a deliberate practice. Be intentional about how you go about “adding value” and commit to improving your game. Remember that growth is a conversation, starting with the question “What do you need to succeed?”. From there, try to understand if your value add is driven by your founders’ need or your desire to be helpful. Be aware of situations where you are acting from your own needs and desires.
Dear investors, let us choose conscious and humane growth. By actively employing the growth mindset when working with founders, we replace the tendency to seek blame on a single individual by the trust generated from a growth conversation. The result? More sustainable, successful teams and better output.
If you want to learn more, get in touch or dig into some further reading below.
- Brookins, C. (2017, September 6). Being an LP in the heart of VC. Hackermoon.
- Shah, S. (2020, February 22). Late-Night Musings On Portfolio Construction. Haystack.
- Parrish, S. (2015, March). Carol Dweck: A Summary of Growth and Fixed Mindsets.
- Bentinck, A. (2015, May 11). Why Mindset Matters for Successful Founders. Entrepreneur First.
- Pilling, D. (2009, July 17). The Most Undervalued Discipline in Venture Capital. derekpilling.com
- Dweck, C. (Dec 2007) Mindset: The New Psychology of Success, Ballantine Books.
- Dweck, C. (2016, January 13). What Having a “Growth Mindset” Actually Means. Harvard Business Review.
- Colvin, G. (2019, February 7). Talent is Overrated 2nd Edition: What Really Separates World-Class Performers. Nicholas Brealey Publishing.
- Cain, S. (2012, January 24). Quiet: The Power of Introverts in a World That Can't Stop Talking. Crown.