The Hard Thing About Hard Truths

Why VCs fudge the truth, SVB was a great business, congestion pricing wins, tons of links.

Terrance Rohan did a good tweet

There’s a few reasons for this -

1. As a VC you don’t have much (any) control so you can’t make anything HAPPEN

2. There’s vastly different levels of personal investment/exposure

3. it’s not fun to be critical and sometimes founders get mad at you

4. Very often you’re just wrong, etc.

But it basically all boils down to asymmetrically bad upside in hard truth telling.

Every company can either be a good reference or a bad reference, regardless of the ultimate outcome. So in an iterative game things very quickly become an exercise in long term reputation management rather than maximizing the value of a specific investment/business.

After all, the less a business is working, the less incentive you have to tell them the truth (the salvage value is going down). But the more it's working, the fewer hard truths you have to tell (and the less you want to be naysayer).

These strong disincentives for honesty are why most VCs are so profoundly useless to the companies they back.

The only way to overcome this is for founders and their investors to set mutual expectations of one another. Founders need to be interested in feedback and mature enough to receive it. Investors need to respect that maturity and intelligence enough to take the risk of honesty.

But every important relationship is ultimately built on trust, respect, and honesty; it takes some risk to get there. VCs unwilling to take that risk are protecting their downside, not maximizing your upside.

As an investor, knowing when and how to pick your battles matters just as much as having the right insight. You have only so many bullets to fire. You can't bring facts to a feelings fight, as they say. And sometimes people just need to figure things out on their own.

It’s not within my ability to help you avoid all mistakes (nor even my job to try) as much as it is to draw on breadth to limit the repeatable/avoidable ones and be a coach and sounding board to improve judgement over time.

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Thanks to Terrence for the inspiration and Mike Dempsey for the feedback on drafts.

I Wrote

• SVB sucked at risk management but was a great business. Mercury might have solved that. I wonder if you could do it for insurance reserves?

• How can you tell if a VC is lying? If his lips are moving and he's making sounds.

Abundance

NY Mayoral candidate Brad Lander has a plan to end street homelessness with a “housing first approach.” We can’t just kick mentally ill people people out of the subways or encampments without a plan (like Eric Adams) did and clearly we can’t let them stay there (like Adams is now doing). It’s neither compassionate to homeless people nor fair to everyone else to turn public space in shelters and mental hospitals.

Mr. Lander’s 75-page-plus plan calls for expanding subway outreach teams and embracing a “housing first” model that has been successful in other cities, including Houston and Denver. Mr. Lander would focus on roughly 2,000 homeless people with serious mental illness and place them in vacant apartments known as single-room-occupancy units, or S.R.O.s.

To solve a problem, you have to admit you have one.

In other news, congestion pricing is working. Travel times are down and traffic is flowing smoothly. That’s a great start. But remember, reducing traffic is only part of the benefit.

Now we have to take the funds raised and invest them prudently to improve the MTA.Remember, we need outcomes not just fundraising.

I Read

• Scarcity During Experimentation, Abundance During Scaling - Hunter Walk. This is basically a tweet but it’s self evident and correct.

• Inside the DOGE Recruitment Drive - Julia Black. I maintain two things about DOGE. 1) it will be a really important network and credential for a certain kind of SV person. 2) It mostly won’t accomplish anything because congress needs to act to change spending.

• Hypothesis Sheets - Michael Bock. I talk and write a lot about the scope of work to do before starting a company. Michael gets into the details with a particular approach that’s been helpful to him.

• The Limits of Founder Friendly: What Happened at Bench - Eric Newcomer

  • This is the best thing I’ve read about Bench so far. And, as expected, basically confirms I was right about everything (the abrupt closure was because of a lender unwilling to extend and pretend). As I mention above, giving the feedback when a business isn’t working or you’re worried it’ll stop working is really hard and the long term reputational risks are quite severe.

  • As a side note, this is a great example of the power of Substack. Were he still writing for a more general audience at a general interest business or tech media company it’s unlikely Eric would be able to go into this level or depth at this length. There’s really good reporting and detail here that deserves to be shared. But as a side note to that side note, if it takes you 4+ years of running a media company to get a threatening legal letter you’re probably being too conservative. Go subscribe to Newcomer so he can take more risks and hire more lawyers.

• AI Has Venture Investors Excited About (Yes) Accounting Firms - WSJ. Remember, I warned you this was coming and I also warned you it was not a good idea/would be extremely competitive. Would be awesome if it works but I am skeptical.

Welcome to the team

Last week I intro’d you all to Ariana. This week Jack Raines started as an associate. He’s hanging with me in NY for now but will be moving to SF soon to work with Sam.

Reach out and say hi. Really fun to have a little crew in the NY office.