The founder–investor relationship is one of the most important - and most fragile - dynamics in a startup. This session examines why it so often breaks down, and what actually improves it.
Fred Destin and Mark MacLeod draw on decades of experience as investors, operators, board members, and CEO coaches to explore recurring failure modes: misaligned incentives, poor communication, avoidance of hard conversations, and unclear expectations.
Rather than theory, the discussion is rooted in precedent - what consistently works in strong founder–investor relationships, and which patterns reliably lead to tension or failure over time.
A must-watch for founders navigating boards, fundraising, or moments of pressure - and for investors who want to build partnerships that hold up when things get difficult.
Auto-generated transcript - may contain errors. Tap a timestamp to jump the video.
The VC founder relationship actually does suck. It's not just some kind of negativity bias that you see on LinkedIn. There's a founder in the UK called Chris Morton at list, and he ran quite a large survey through this new initiative he runs called Starboard.
I think the NPS was minus forty, which is as bad, I think, as Ticketmaster. So, you know, our industry is doing no better than Ticketmaster. It's a pretty bad indictment. So you coach CEOs I do. All the time. How bad is it? Board dynamics comes up a lot. That's for sure.
Definitely a very common topic. I think the big elephant in the room is that most venture backed startups fail. Right? So that's a thing. I shared a stat this morning that seventy percent of VC backed exits since twenty twenty two were for valuations that were less than the capital raised.
And I'm sure we're going to get into that, but you know, the surest way to be disappointed is to have really high expectations. And I think both sides have high expectations. Right? Obviously, as an investor, I have a belief that this can be the next outlier, but more often than not, it's not.
And then as a CEO, I expect the VC to be all singing, all dancing, and, you know, the most connected and the wisest person possible. So I think we're coming into this game that's really, really hard to win, each with expectations that are too high.
Okay. Now so how bad is it for your founders? Like, just give us a little bit of color Beyond the beyond the headline. Yeah. It's it's very correlated with performance. And I tell my CEOs all the time with no disrespect to VCs, like, you know, your VCs are fair weather friends.
And they may truly be friendly with you and they may have a relationship outside of you know the investment, but at the end of the day they're here to deliver outsized returns, and if you're on that trajectory everything's great, and if you're not things are not great, right.
And so if you haven't cracked the code on distribution and you know you're not hitting your growth targets, it's a tough dynamic. Okay. So I'm going to challenge you on that front. Please, please. If you go into the relationship thinking your investor is only a fair weather friend, we're kind of already starting from the wrong standpoint, so it's sort of interesting.
You go in thinking this person will be there as long as I perform. The moment I stop, they're either gonna get angry or they're gonna drop me. So I think the corollary is then as a founder, you're not gonna come out and tell them the truth.
Exactly. That and that's which exacerbates it. Right? Because by deaf like, it's really hard to be a founder. It's really hard to scale. It's a really actually lonely job. The bigger the company gets, the lonelier it is. And it can sometimes be tough to combine confide in your board members, especially in the later stage where maybe you no longer have control of the board.
Right? And then you like actually can be replaced. Right? You're maybe not gonna tell them about your mental struggles to the same extent. Yeah. Interesting. No wonder it's fucked up. I wanna do something slightly unusual, maybe. Is are the people with the mic around?
Because what I'd love to do is if anybody has a question, especially a Pearson question or something that upsets you, if you want to bring it up through the conference, maybe do it. So just that we get a of liveliness in here. Okay, so my observation is, so startups are kind of a dumpster fire most of the time.
Startups are chaotic. They never follow a plan. When we write the plan, we know it's poetry. I mean, the founders know it's poetry. The VCs kinda know it too, but then you sort of get into that relationship where you're like, you better deliver on the plan that we know it's The plan that we pulled out That know is poetry.
Yeah. Now you're When someone was setting off on the wrong foot, right? Yep. I remember when I was with on the board of Deliveroo, you know, Will Shu used to come in. And Will Shu would come in with his shorts after his workouts.
And he'd come, and they'd be like Martin from Index. And Will would arrive and go like, everything's fucked. You know? And he would start with the bad news every time. I mean, man, honestly, we found it so refreshing because we're just like, okay, what's the burning fire this week?
Oh, you know, Uber is trying to poach our riders and, you know, Germany isn't going well, whatever it was. And I I found that quite refreshing because it was like, we're starting from the viewpoint that this thing is not going to plan. And then it put us in the mindset, put everybody in the mindset of, okay, what is it that we can do to fix this?
And I find, and I agree with you, I think a lot of boards are quite performative. You know, people come and pretend that they're trying to execute against their plan that they know in poetry and the people on the other side of the table sitting there going, well, I'm gonna be your accountability partner.
Yeah, yeah. Yeah. And then you see this dynamic where, especially in large syndicates, people speak so that they can communicate how smart they are to the other people in the boardroom. Ah, so that's the question of are we having a real conversation here?
And do we have relationship as a group? Right. Or is some kind of dark triad egomaniac trying to exist in the moment? Exactly. So do wanna talk a bit more about that and what you see? Yeah, well, I think it's really hard to create a fully aligned board.
You're going have all these different circumstances. Maybe, I don't know, some really small regional fund backs you out of the gate, and then everything goes great, and now a tier one fund swoops in and does the next round. Like, what are the chances that there's alignment just between those two investors?
Like, their realities are totally different. Right? One may be desperate to have an actual cash on cash return to be able to raise the next fund, and the other doesn't care because they have so much assets under management like they feel invincible, you know.
So, that latter one will be like shoot for the moon, and the first one will be like can you just please exit, you know, like it's really hard to be aligned. Okay. So what you're describing is that circumstances that have absolutely nothing to do with the company Well, other than like presuming the company had choice, it impacts them on to the extent, well, I selected these investors who are, you Sure.
But I mean, whatever the fund situations are is kind of external to the reality of the founders trying to run their business. And you're saying that all these external circumstances are coming in and impacting the way the board is run. Yes. What do you think? Do you agree?
Question. Go for have a question. So we're talking about we know from the founder perspective, people are unhappy. They hate we've the data. People are unhappy. But from the VC perspective, is it the same way? Do you see the relationship with the founders in the same way that founders see their relationship with the VCs?
I think that's kind of gets at the heart of this question you're getting at. From the there's this power imbalance, but do the VCs see the relationship in the same way? So I'm a venture capitalist, so I can I can maybe start that one?
That's why. Yeah. Exactly. At the beginning, VCs take a leap of faith because they believe in a team and they believe in a project, and then they go sell it to their partnership. And so they go in with the best of intentions, and they kind of fall in love, and they want the thing to work.
So that's where they start from. And I think Mark was saying it, at the beginning, you put twenty five or thirty companies in the portfolio, so you think all of them might be the one, right? And then there's this issue of over time, as you see the portfolio segments between companies doing well, not so well, you kind of start to reevaluate where you put your time and energy, and funds are variably good at how well they do that.
But let's forget that for a minute. So I think there's a fundamental problem on the VC side that a lot of VCs need to think about, which is they go in there thinking the founders work for them. They have the power because they have the money.
And again, they don't mean badly, but it's sort of in the background somewhere that because they funded it, they're owed returns. They have a misconception that they understand the businesses that they back better than the founders that they've backed. And then most of them are dropped onto boards without any training.
It's like literally you're a principal at a venture firm, you go, hey, now you can write a check and take board seats. These days, everybody's called a partner, but it used to be principal, doesn't matter. And then you're like, cool, so I can go write checks.
And again, you're young, ambitious, well meaning, man or woman. And you go and you write checks, then you land at a board. And then you kind of go like, oh, I have not thought about alignment. I don't know how to listen, by the way.
I used to be an operator, and I was a hardcore exec out of Uber, and I ran a team. I actually forgot how to listen. I don't know what advising is versus executing. I don't know when not to advise. I don't know when to just shut up and ask quality questions.
I don't know when to not direct the debate, but actually observe what's happening because it's not my company to build. And I get pressure from my partnership. They're like, you better fucking make this work because it's your first check. And then you're fearful, maybe, because the market's changing, and some AI startup out of Germany is taking a eating a lunch.
So you bring fear, you bring pressure from your partnership, and you've never been you've never thought about what the role is, and that's your third board experience. Now if you get lucky I'll pass it over to you in a second. If you get lucky, you get successful, you get a big hit, and now cool, now you can show up at every board meeting and replicate.
And because you're Midas list player, nobody's ever going to question you. Right? If you're not doing well, then you get more and more fearful. So you get into micromanagement, and you're like, what was your travel budget last month? I mean, who fuck the shit about your travel budget?
Instead of you thinking, I'm trying to influence the direction of a ship that I'm not running, and I'm trying to do that by bringing clarity, quality of thinking, and helping the founders think better about the problems they're trying to solve, and I'm trying to protect their energy.
And I'm nobody. I'm a minority investor who on occasion would be called upon for important discussions. So you kind of have to be a monk. You have to be a coach. He's a fucking coach. He's a be a great board member. You have to be a coach and like, I'm not here.
I'm just a mirror. I'm just helping you understand the situation you're in. Nobody's trying to do that. Everybody's trying to be on the minus list and go like, I'm the biggest, whatever, you know, sexual appendage you'd like to choose in the you know?
What do you think, Mike? Yeah. You said I think you said it very well. Like, here's the thing. Like, venture isn't an industry. It's this apprentice driven craft. There isn't a book. Maybe well, there are books, but like you didn't read a book and like, well, now I'm a VC.
You figure it out by putting in the reps. And it's really hard to be on a board and VCs have this thing called agency risk. So that former operator from Uber was used to having success rest on their shoulders directly, and now they succeed through you, through the operator that they backed.
And then if they're newer and this is their first time writing a check and their promotion to partner depends on it, then they don't have the intestinal fortitude for the inevitable ups and downs. They panic, you know. Whereas the more seasoned, the GP, the person who founded the fund, who's been through a few cycles, they can breathe and they know like it's okay, you know.
So the younger partners, I think, do panic more. It's a great question. Let's bring in the questions. I love it. I mean, it's just so dynamic. There's two up there, I think. Hi. Given I really like that advice on what people don't seem to recognize are the important qualities in a board member as an investor.
I'd love to hear any more of those. But equally on the other side, what would be your advice to a founder who's building a board, how to run that board, how to get the most value out of the board, and how to avoid it becoming, frankly, a reporting exercise, and these are our metrics and so on.
Yeah. You know, the example I bring up on that last part of your question, this is maybe a bad example because he ultimately goes ousted from the board from an activist investor, but Jeff Lawson, who is the CEO of Twilio and took the company public, and he always talked about the board as his second management team, and he would run the board in the exact same way that he ran his company, right, and his leadership team.
So as a leadership team, right, you set goals, you have accountability, people have deliverables. It's great to do that with your board meetings. So a few of my CEOs take this approach. You can actually gamify this a little bit if you have a bunch of VCs on your board and you can have a slide in your board pack like who added value between meetings.
You probably hate that, but some of my CEOs do that. But you know, there's like a charter for what are the responsibilities of a director. Directors get a performance evaluation, you know, in the extreme. So not every that's that's a minority, but like basically run that and even though you may report to the board, unless there's an external chairperson, run that board in the exact same way you run your leadership team.
And maybe one other final suggestion. The last time I was operating in a couple of companies that I coach now do this, We have this notion of an operating calendar. So let's say a board meets quarterly, you're gonna do the regular board governance stuff, but once a quarter there's like a theme.
Maybe Q one we're just doing a deep dive on talent and who are our high performers and what are we doing to keep them and retain them. Maybe the second quarter is competitive landscape. Third quarter is like a three to five year, like let's do a long range plan.
And fourth quarter is the budget for the coming year. So there's some kind of strategic thing that the directors can sink their teeth into once a quarter. I think, so the board becomes this kind of big bad wolf weird entity where you're like, is it adding value?
Is it holding me back? I think it's important to remember that the moment you sign a shareholders' agreement with minority investors, you're codifying a relationship between shareholder management team. And at the existential level, you have some decisions that will go through the board anyway.
So approving your budget, approving your strategy, raising money, shutting the company down, selling the company, litigating. The big six will always run through the board. So before we talk about anything else, just like do we have the kind of relationship, trust and engagement where we can run the big six properly?
That's like existential level. One level up from that would be accountability partner. You know, KPIs, etcetera, and they do matter. I mean, think sometimes KPIs and analytics are sort of derivative products of large companies that we think we need in startups. I mean, they can be very distracting.
But I'll give you an example with Alex Chesterman at Zoopla. We designed a set of KPIs with two sheets. We designed them year one point five into the company, and we didn't change them for six years. So the internal operational KPIs and financial KPIs of the business were used internally, were used at the board, were delivered as an Excel sheet, and we all knew the language.
And then that thing became really true north for the company, internally, externally. And you know, we spent the time, we spent hours on this shit together, and then we had this, and we're like, cool, language, so definition of the things we're measuring, abstracted to the best possible level, and then repeated over and over and over again so we had muscle around it.
It was great. So that was reporting done well. Then you get into strategy, brand and narrative, organization design, fundraising. We know a lot about fundraising strategy. So you get into these big blocks of like stuff that's common to all companies. Then you get into GTM, product, pricing, specific culture and values, blah blah blah.
So you're getting more and more granular. You can't expect your board members to be good at all of that, unless you're Dave Kellogg. I'm on the board with Dave Kellogg. Mean, oh my god, the guy's been a CEO and head of marketing six times and he's an absolute machine.
But he's one in a million. I can probably cover sixty five percent of that because I've been doing it for twenty five years. Maybe. Maybe fifty percent? Well, but you can't expect everybody to be all things, right? So then you kind of go like, all right, with the talent that I brought, what do I have here that I can work with?
So you start thinking really of the board as a resource. The reason why I don't like value add bingo is you know what? Most of the time, you want your investors out of your fucking hair. You actually don't want them adding value. Just like, do the basics well, and you know, if you're especially good at a specific thing, I will lean on you.
But this value add stuff is like then VCs feel like they have to add value, so they give you irrelevant intros. I have a company in applied AI in the oil and refinery space. It's a phenomenal business. And my co investor, who's great, has done twenty intros for them, like at quite high level within oil companies.
And the founder's like, I have to be honest, none of them landed. Because the people they need are so specific, even with their best intentions, they're not adding value, they're just wasting their time. So it's really hard to like quote unquote really add value in these company specific ways.
So that would be my advice on it. But you know, first time founders just stumble into boards. They're like, oh shit, this isn't working. Second time founders are very deliberate about design. The real design, the way you design anything. Processes, the time spent, the information we bring, the people.
It's a designed experience. And then it can work beautifully. By the way, I've had phenomenal board experiences. The board at PELPAC, you know, TJ, Elliot, David Frankel from Founder Collective, and myself was a blast. It was a fucking blast. For five years, we had fun.
We made decisions quickly. It was great. So it doesn't always have to be a nightmare. I've had awful boys too. Probably more awful than great. I think you had a question up front, right? Hang on, hands up. There's a mic. She'll bring the mic.
Lana for us, but not for the back of the room. Thank you. Okay. Now I'm loud enough for everyone. So I would love to challenge you because it sounds like, you know, this whole board meeting situation sucks for founders, yet you, Mark, are coaching founders.
And as a founder turned investor myself, that was in the situation as a newbie on the board, I was smiling and could totally relate. The question is, shouldn't we start coaching investors so they are actually better at their first, second, you know, board assignments?
Because I can also see other investors that are newbies. It's easy to spot. I'll give you a very quick answer to that one. Absolutely. I think that first of all, VCs are professional board members. So it is on us to bring a better level of board behavior, board just being skillful and being a great board member.
Let's just define it like that. So there are some soft skills you can train. Learning how to listen. Moving your attention from being hyper focused on the person speaking to lateral. So you're actually paying attention to what the CTO is feeling, what's going on there.
You know, so you're kind of you're taking things in because you're getting information. You're listening well. You know how to get a group to listen. You're then you know, you're capable of systems thinking. You know, you're not just looking at the information that's being presented, but you're bringing yourself back and go, oh, what is it that's being edited out?
What is the real question we're trying to solve? Basically, your job is to abstract up from the information being presented going, what is the problem we're trying to solve? And then things like what I would call the way of the samurai. So, you know, samurai do two things really well.
One is parry and strike. Samurai doesn't use a lot of energy. It's like, you're dead. As a board member, it's like, what's the way of the samurai? Like, what is the most elegant gesture? So what's the fewest number of moves that I can do so I'm not overloading the company that yields a result?
That would be useful. The other great way of the samurai is thinking about death. The samurai meditate on their own death before they go into battle. If you're the voice of calm and reason on a board, and you go, let's just talk about our failure modes for a moment so we can take the pressure out, we can take the fear out, and so everybody's able to think properly, That's another example of something that an experienced investor can bring where the CEO's like, you know what?
The likelihood is I'm going to fail. Yes. The likelihood is you're going to fail. Thank you. Now we can talk about the real problem. Right? So it's an old sorts of skills that are soft skills, hard skills that we can bring to the table, so one hundred percent.
I think we need VC academy board training, period. We need more VC samurai. Great. I love it. VC samurai. Yes. Maybe that don't kill people. You know, VC samurai actually heal people or something. Question over here. We've talked a bit about the VC side of the relationship, but, obviously, a relationship is a two way street.
And I think board education on what it takes to be a good director probably applies to founders as much as it does to the VCs. What other things the founders need to do to bridge the gap in this relationship? Hire a great coach, obviously.
Pardon me, Cloud. Which in a way? All of my CEOs have peer groups. Those could be formal peer groups or just informal things that they put together. It's really important to talk to other CEOs. Actually, other CEOs know what CEOs are going through.
And then there are best practices, certainly with respect to running board meetings that you will learn, first of all from trial and error, and second from speaking to those other CEOs. And there's definitely things I offer up to my CEOs to help them run their board meetings better.
I love that example you gave of just kinda starting off with the bad news with Frank Slootman from Snowflake. The first slide on his board deck is literally titled, shit that's broken and how we're gonna fix it. He skips the good news. He assumes you can read it.
And that's great. You know, I I ask my CEOs to start off every board with a thing called a traffic light report. On one page, green. Here's what's going well. Yellow. Here's things I'm mildly concerned about. Red. Here's things I'm really about and what we're going to do.
So like on one page, I know everything that the CEO is thinking about the business. So a big job of the CEO is to give context. Right? First of all to all the staff members so that they're rowing in the right direction. But when Fred shows up once a quarter, he's not thinking about the business twenty fourseven the way the CEO is, so the CEO has got to give Fred context.
I think similarly, you know, there's a set of best practices. For me, what's very important is understanding where you are in the discussion, and I think that happens rarely at boards, which is, hey, first we need a diagnostic. So we're not making decisions right now.
We're trying to establish a diagnostic together. Then we're going to some kind of discovery discussion. Let's just brainstorm what we think we could do. Then we go into decision. What I find is, and founders very often come with their own level of anxiety, so you get into that place where they're coming in with trying to explain something that's going wrong, and you immediately get into opposition because the person on the other side doesn't feel like they're being told the whole thing, and so they have to kind of go dig to really find out what's going on.
So I think the question for the founders is like, okay, what do I need out of this board? So first of being very intentional about, you know, there are two or three problems I'm trying to solve right now. Let me just verbalize what they are.
So it's like, people love to be useful. It's like, here's the three questions that I'm struggling with that we need to talk about to which I don't know the answer. And from there, I think you're kind of disarming a lot of these dynamics that are quite oppositional by going into a place of like, oh, now you're sitting alongside me in the cockpit and we're trying to fix things together.
I think for founders also to say no, like actually, you know, that discussion is not helpful. This is sort of saying no to investors. I think I find that founders mold themselves to what they think investors want, and investors have to be aware of that.
Like we hold a lot of influence that we don't realize. It's got this it's of sub it's not expressed in the room. But for the founders to say, look, you know, actually that debate is not interesting. That's not what the company needs right now.
This is where I'm focused. And I think investors would react quite well directional with that shit. And so I think for me, for founders, there is a stepping into leadership. And the stepping into leadership is, you know what? I'm just going to say what I need.
I'm going to say what I want. And I'm and, you know, and life is too short for me to get distracted by all this crap. The flip side of that is when you get pushback from somebody who knows your business less well than you.
I will never know the business as well as a founder. So I may even verbalize my feedback in the wrong way. There are two possible responses. I'm a victim, I'm a narcissistic founder who goes, oh, my investor's an idiot, it doesn't understand my business.
Okay, and the other way is to say, I don't think that was expressed very well, but if there's something in Fred's intuition that leads him to bring this up, there's something of value in there for me. And at the end of the day, I run the business.
So on the one hand, it's like show up strongly. On the other hand, it's show up with humility and go, whatever this person's saying, they may not be saying it right, but because he sits on twelve boards or fifteen boards or whatever, there's probably something of value in there.
What is it? Because all I'm trying to do is find solutions. So then we get out of this we have the answers, no you don't, yes we do. It's like, it doesn't matter. We're just trying to build a business. I'm trying to build a business.
You're trying to build a business. Can we get back in the We're in the sidecar together, and the VC's on the side with the helmet going, yeah, go, go, go. Let's try not to die, you know, and kind of remind ourselves that we're in this little sidecar together trying not to die.
And so I think, sorry, it's a bit of a weird answer, but, you know, there's something in the way of in which you show up as a founder that's like, this is my company. I'm looking for you to not tell me what my strategy is, but to challenge it.
And I welcome the challenge. But I fucking run the show, but I welcome the challenge. You know, it's kind of playing that well. We have a minute left, so maybe one more question. Make it hard. Speak very much both. I was wondering if when we're talking about the relationship, what things are you looking at in young founders potentially without any track record that are forming a company?
You know, when you're choosing as a, say, a VC which companies you may actually invest in, how what characteristics are you looking for in a young founder that might indicate some level of success in the future, if anything? I mean, dude, first of all, I love young founders because there is something very pure about how close they are to the ground.
So direct feedback from clients, direct adaptation, I find it extremely easy to work with young founders because we're always in the reality of the business. And they don't have preconceived notion of what we're supposed to do together. So it's like very direct. And I think what I would say with young founders is we need to give them the time to grow into the leader they can become, because nobody fucking becomes a leader overnight.
And so when you find great founders, it's like just allowing them the runway to become the leader that they can be. And it's just like, you know, having this sort of patience of, hey, they'll they'll just gonna go figure this out. Yeah. You know, when I was a VC, I only realized this sort of afterwards that the best investment opportunities were based on a crisp and simple insight that that founder was uniquely qualified to give.
It was not easy to execute in any way shape or form, but the the founder could convey the idea in a crisp and simple way because they had mastery over that field. So I think a founder of any age, that's a thing that I that I look for.
I mean, we honestly develop age blindness over time, which is when people know their shit, they know their shit. And then when they're compelling around it, we're like, alright. Let's go. You know? And then you're kinda reminded sometimes over time when you're working with them.
It's like, oh, yeah. You're only twenty two. Sometimes it shows up, but, you know, you kinda forget. I mean, because you're just fucking great. That's right. Yeah. Yep. Alright. Thank you everybody. Much appreciated. Thanks, Fred.
