The Pareto principle, also known as the 80/20 rule, holds true in the VC world: More than 80 percent of our returns come from 20 percent or fewer of our bets. You’d think I spend the majority of my time assisting that 20 percent, but I don’t. I spend most of my time with the 80 percent -- our portfolio companies that’ll return little to nothing. And I’m not alone.
Why? It’s the job. When things are going great, there’s little motivation to interfere. But when a company is underperforming, we do damage control. And there’s another reason we need to devote our energy to flailing startups: I need to show my investors that we’re pursuing every option before giving up on their money. Sure, we’d probably impact returns much more by turning our attention to the winners rather than trying to save losers. Everyone knows this -- but somehow we always ignore this discipline. Like the ’treps we support, we never give up.
Why am I telling you this? If we show up to help your company through a rough patch, don’t take it personally, and don’t take it as a sign that we automatically expect your company to fail. Use it as an opportunity to turn things around, following these steps:
1. Ask why we’re here.
You think you’re just in a rough patch. But we may know the reality is different and how to help.
2. Cooperate with us.
Money is the lifeblood of your company, and we have a vested interest in it. Play ball with us, and you could get more.
3. Challenge us.
We can help you set your goals, but it’s up to you to tell us if you can achieve them or if we’re just flat crazy.
4. Take advantage of us.
If we’re willing to pitch in, by all means take the free labor.
5. Make a plan to get rid of us.
The sooner we map out a way to right what’s wrong, the sooner we’re gone. Remember, we’re not enjoying this intervention either.