A VC who's invested in Lime and Jet.com explains why 'backing sociopaths' can work when looking for successful startups
- Investors look at the potential of a startup founder in addition to the company they're trying to build.
- Matt Harris, a partner at Bain Capital Ventures, previously stated that "backing sociopaths can work." Bain's portfolio includes Jet.com, Lime, and Alice.
- On a podcast episode of "The Twenty Minute VC" with Harry Stebbings, he explained that this is due to their willingness to break rules. He's not the first person to take bets on egotistical or ultra-confident founders.
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If there was a blueprint of an ideal startup founder, modeled after success stories like Mark Zuckerberg and Steve Jobs, the emerging picture would be someone fearless and unafraid of societal norms. Founders are people who break into an industry and irreversibly disrupt it. However, the characteristics that stamp them as great could be detrimental out of context.
One investor came right out and said it: "Backing sociopaths can work."
Matt Harris, a partner at Bain Capital Ventures (with a portfolio of investments that includes the likes of Jet.com, Lime, and Alice) stood by this statement on an episode of "The Twenty Minute VC" with Harry Stebbings titled "Brad Feld on Why Market Size at an Early Stage is Not Helpful, His Biggest Learnings From the Boom & Bust of the Dot Com, and How the Best VCs Work for their CEOs." Harris didn't emphasize the criminality associated with sociopaths as much as he did "the level of bravado" needed to be a founder, which often comes along with a willingness to break rules.
"In our view, we are not looking to back timid founders," he told host Harry Stebbings. "We are looking to back founders, of course, that have a deep sense of fiduciary [responsibility] and founders that are not going to break any laws. But if we only back founders who are unwilling to break rules, then I think we're giving away a lot of the upside of our industry."
Harris points to the founding story of Facebook, which Business Insider's Nicholas Carlson explored in 2010, as an example of the words of the 19th century French novelist Honoré de Balzac: "Behind every great fortune is an equally great crime."
Case in point: Mark Zuckerberg actively decided to string along Cameron and Tyler Winklevoss and Divya Narendra, who asked him to work on Harvard Connection, so that he could back out right before he told them he'd have it done. He didn't tell them about launching Facebook, because as he told a friend via IM: "I think the Facebook thing by itself would draw many people, unless it were released at the same time as the dating thing."
WeWork is another example. The company was built on a transformational idea, so investors were initially willing to overlook poor governance as the valuation kept rising. They may regret this now, as within weeks WeWork's IPO dreams dissipated and its co-founder, Adam Neumann, left the company.
In Harris's point of view, rule-breaking should be deemed fundamental to entrepreneurship. Enough founders break rules, or miss the mark about what rules should be broken, to establish a noticeable pattern.
Harris is not alone in believing in founders that have the confidence to break rules and think that they can be applauded for it. Marc Andreessen and Ben Horowitz, founders of the venture capital turned financial-services firm Andreessen Horowitz, wrote within the pitch deck for their first round of funding that their ideal founder would be "egomaniacal."
Scott Kupor, managing partner at Andreessen Horowitz, previously told Business Insider that they "wanted people who were so confident in themselves that they were literally willing to quit their jobs and start over from scratch and walk through walls and do something that everybody has told them to their face is a waste of time or can never happen."
All of which means that investors are often placing their bets on the founder's potential more than the company itself.