Venture Capital as Psychology

Last week I had the pleasure of speaking in an online forum with a few thousand entrepreneurs, family office principals, and venture capitalists from around the world. On my panel an interesting opinion surfaced around the use of social media. Is there a strong rationale for backing, or avoiding, a founder with a high disposition for sharing, or as it’s now more popular to say, “building in public.” While some laud this behavior as core to building your business, or creating teachable moments, others see it as self-centered, or further fueling the cult of founder in an era of team.

I think, with many things, the lesson is two layers deep. It’s less about if and how a founder, or any individual for that matter, is vocal on social media, and more “why.” I learned a framework a while back known as R.I.C.E. For the injury prone athletes among us, I’m not referring to “Rest, Ice, Compression, Elevation,” but rather:

• R: REWARD
• I: IDEOLOGY
• C: COERCION
• E: EGO

Reward as a motivation speaks to what that individual is seeking. This outcome could be money, status, fame, or any external or internal reward for their actions. We can debate the value of working for such “reward” outputs, or if there are more “pure” motivations, but think of this as Jerry McGuire shouting, “Show me the money.”

Ideology is more about a world view, or a fundamental belief system. It could be perhaps framed as values. What does this founder see in the world that they want to will into being? At some point this is where job becomes career becomes mission. It’s perhaps less common that you hear about someone with a life-long passion and core ideology about building CRM software or enterprise SaaS, but in some sectors like, say, climate, it’s very prevalent. I would argue someone like Elon Musk is an ideological founder. He really doesn’t need more reward. He’s building because of core convictions about humanity, risks technology can impose, and benefits it can engender if stewarded correctly. Perhaps he's egocentric in his self-belief in his stewardship, but I'd argue at his core he's ideologically motivated.

Coercion is about trying to affect change, but perhaps more aggressively, without authentic openness to alternative viewpoints. The line between an ideological founder and a coercive founder is perhaps thin, but inheres in a founders genuine openness to logic or objectivity, and a humility about the validity of alternative viewpoints.

Ego is about how others perceive this person, how they want to be known. Ego invokes a narcissism, a self obsession, and a mirror back on oneself for why or how they might be acting. In truth, we all probably exhibit elements of all four letters from time to time. We work for reward, ideology, to coerce others, and because of ego. And of course we certainly self-identify in ways far more flattering than reality.

As a venture capitalist, namely as someone tasked with deploying money on behalf of limited partners into founders and CEOs whom we believe can impact the world, I would argue that I try to isolate and invest in those working in earnest toward Reward and Ideology. My belief is that founders with these two motivations are aligned with the outcomes that drive venture scale financial returns for my limited partners. As we live in a capitalistic society, I do fundamentally believe it’s ok for a founder to want to become a billionaire. That’s not mutually exclusive with creating an insanely positive company for the world and many in it. Therefore I seek out founders with a “chip on their shoulder,” and a drive to win, and perhaps to chase “reward.” I also fundamentally believe this is an honest, if not purely “good” motivation. As stewards of capital, we as investors also maintain a huge responsibility to steer capital into ideas that are fundamentally “world positive,” or on a trajectory we believe to be net good. As such, there are many categories of business that we will never invest in, even if they’re moneymakers. The founder’s hunger or drive, insofar as they’re going the right direction, is just fuel.

Ideology is a motivation that can cut both ways. It can mean principled, but it can also mean stubborn, intransigent, fundamentalist and uncompromising. These are not good characteristics, and not ones that we seek in our portfolio CEOs. Great founders are coachable, adaptable, malleable, and flexible. They might have a strong world view, but they are not ideologues incapable of change. They are those who can listen, hear both sides of an argument, and make the best informed decision for the company, regardless of how it makes them look. The truly competent founder can therefore put Reward or outcome far above Ideology, Coercion, or Ego.

Ideology can also be a slightly less honest motivation, in my view. Most people say they want to make supply chains more efficient, or reduce climate change, but in their own hierarchy of needs they probably first want to safeguard their own personal health, their family, their security. As such I’m wary of the overly idealogical founder who can’t also admit the type of outcome they’re seeking, because I don’t trust them completely. People often want to appear ecumenical, so might wear the mask of Ideology, but then this is just a betrayal of their own Ego, and the importance of how they desire to be perceived. As such, I’d much rather a founder be dead honest and tell me what they want.

The Coercive founder is the one who’s quick to tug on the FOMO strings. “I got an extension to close for a few more days because I want to take in your check.” “I’ll let you in on the old SAFE valuation but I’m closing by Friday.” Or my absolutely favorite, “We’re already oversubscribed,” (as the email comes in over the weekend). Coercion is a yellow flag, a manipulative tactic that, sure, might close you some sales leads, but is not a core characteristic or motivation that I seek in founders I back. I think authenticity, solving a huge problem, and building authentic brand have more impact on long-term sales success than any form of glib “hustling.”

And finally if coercion is the yellow flag, Ego is the red flag that makes me run for the hills. I think this may come across as contrarian to some, but I’d argue that the nuance here is the difference between Reward or Ideology, and pure Ego. Pure Ego is concerned with vanity, with narcissism, with the appearance of success rather than the attainment of it. Nothing screams Ego like the TechCrunch article that comes out about the acquisition that lost everyone money. Yes, saving face can be nice, but ultimately this is Ego. The company failed, and the “optical win” is dishonest pat on the back (and this can be motivated either by the founder wanting to project success, or the investors also wanting to mollify their limited partners, and project success. Ego exists on all sides of the table). While we’ve all seen these, and probably even helped write these press releases, Ego is the characteristic that probably led to that failed outcome in the first place. Oh, the irony.

The problem with Ego is that it’s irrational when contrasted with Reward as a motivation. For example, we’ve all had the experience where the terms of a great deal change at the last minute. The egocentric founder walks away because they were slighted, bruised. Or they chalk it up to “principles” or “values,” hiding their own Ego behind the mask of being Ideological (but we know that’s a ruse). “That person shouldn’t have done that,” we say, justifying our irrationality. But if one fundamentally believes it’s still a good deal, even after the terms have changed, even after your pride is bruised, swallow your Ego, and make the deal happen. Make the rational decision as pertains to your job, which is to prioritize the success of your company, or your investors, not to babysit your ego and pretend that you’re teaching someone a lesson. Don’t take two steps back to punish an enemy when you could take one step forward by being the better person, and swallowing your pride. The founder who can maintain an even keel and make the best business decision every time will win against the one who has to babysit their Ego behind an Ideology.

So finally, back to the question posed. In the case of the peer or CEO who has a vocal social media presence, it’s complicated. I’d say that as a potential co-founder, as an employee, and as an investor, it’s good to take a look at why you think this person is sharing, and how they’re communicating. Is this all about their Ego, photos, or always their opinion? Or is this about a narrative or a perspective on their industry? Is this about trying to teach, or move a company forward for the impact of their Ideology, or the seeking of their Reward, or is it about optics? Is it about keeping up with the Joneses and looking successful? As with all of us there’s no right answer, but maybe this helps you self-evaluate, and think about how you are motivated. Are you impelled by the R, the I, the C, or the E? And in those you most admire and respect, how do you think that they’re authentically motivated?

The purest among us are probably ideologically inclined, yet detached, though I’d argue that for most that’s probably a mask we all wear on top of Reward or Ego. To those overly ideologically inclined the risk is the quick slip into Coercive behavior that becomes too attached to outcome. Ideological motivation with detachment probably supersedes Reward on the hierarchy of “good motivations,” but for my day job as an investor, rather than philosopher, I’ll back founders motivated by R or I.

And for those Coercive or Egocentric motivations… a la poubelle.

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Scott Hartley is co-founder and managing partner of Everywhere Ventures, and author of The Fuzzy and the Techie, on human skills in the era of AI.