A good founder’s guide to bad VC behaviour

Bad behaviour in the tech sector has been in the spotlight in recent months following revelations about inappropriate behaviour by VCs and founders who have created toxic corporate cultures. How can a founder deal with these problems if they arise?

When confronted by bad behaviour from VCs, whether that’s inappropriate sexual advances or underhand business practices, founders should not be afraid to speak out. “I want to know if other investors act inappropriately because if they do then I don’t want to deal with them,” says Harry Briggs, partner at BGF Ventures.

Gloria Baeuerlein, partner at Index Ventures, says: “If you do see inappropriate behaviour then the best thing to do is talk to your angels or early-stage investors. They have a relationship with VCs and they will stop referring companies to investors who get a bad reputation.”

The investment process isn’t only about VCs assessing founders. Gajan Rajanathan, of Highland Europe, says: “When you raise capital you want to make sure to do due diligence on your VCs too.”

More work needed on diversity

The tech industry is frequently seen as being dominated by white men, whether that’s investment firms or the founders themselves. And this lack of diversity can often allow improper behaviour to go unchecked. At a recent Tech City UK event, FT journalist Kadhim Shubber asked why the industry still struggles with diversity.

Ms Baeuerlein told him that VCs have begun to realise that they will do better if their firms represent the population at large. The customers are diverse and, therefore, the investors and the companies creating the products should be too. She says that, while there is more work to be done, the face of the industry is changing as more women are recruited by VCs and more female founders are funded.

Founders can easily be tempted by bad behaviour themselves, particularly when they are desperate. Giles Palmer, founder of Brandwatch, (one of our Future Fifty companies) admits that he once lied to an investor about his expected returns because his company was just a few months away from running out of cash.

“You will get found out,” he says. “When my investor found out, he metaphorically gave me both barrels. And I deserved it.”

A positive culture is vital to growth

It’s easy to make one mistake but a toxic culture tends to arise from a series of bad choices. However, Tugce Bulut, founder of Streetbees, (an Upscale alumni company) says she thinks that such companies are the exception. She says: “Culture is key to growing a business rapidly. A company that grows well with a bad culture is an anomaly.”

That doesn’t mean that creating a good culture is easy. Almost every founder will say that it is one of the hardest parts of the job, especially when you need to maintain that culture through rapid growth.

Elizabeth Clark, co-founder of Dream Agility, (one of our Northern Stars winning companies) says that her secret is to “hire slowly and fire quickly”. It takes time to discover whether a person will fit into the culture and so the hiring process should be designed to test that. There will be mistakes, though, and it is important to let people go as soon as it becomes apparent that they don’t fit.

When it comes to avoiding investors who will attempt to give you a bad deal, says Mr Palmer, it’s worth teaching yourself at least the basics of term sheets. Only then can you understand whether the deal being offered is a fair one. He adds that it’s worth making sure you have a good lawyer on hand too.

Even if the details are not always public, word often gets around about VCs and founders who behave badly, because those who deal with them will let people know. When behaviour really crosses the line, however, as it does in the case of sexual harassment, then VCs and founders are agreed that the best thing to do is to speak out.

This article was written based on two panel debates at our recent event: Tech Nation Talks Bad VCs and Bad Founders