VCs are structurally stupid

They're not actually stupid, they're just in a weird job

I shit you not, a VC asked me to write this to share with their portfolio companies. I promise I have nothing against VCs. I have nothing against raising VC. Many of my friends are VCs. They work really hard, are extremely smart, and try to do the right thing.

VCs just have a weird job, and the nature of their job makes them give terrible startup advice.

Said simply: VCs are structurally stupid.

“Structural stupidity” is a term coined by Jonathan Haidt, a social psychologist. He uses the term to explain why American politics are so obnoxious. The concept: Even if the people involved are smart, the outcomes are stupid because the system dynamics cause stupidity.

How does structural stupidity apply to VCs?

The nature of the job causes VCs to give bad advice, for two main reasons:

1. Everybody lies to them. Every conversation with a VC is a pitch. As a result, few VCs have any clue what really goes on inside startups, even post-investment. We all do our best to pretend we’re not total dumpster fires when talking with VCs. And even when you find PMF and start scaling, why would you tell the real story?

2. They get no real feedback. Who’s going to tell VCs that they give bad advice? The founder who never wants to get funded? The founder who wants to risk their follow-on funding? Much easier to just nod and say, “great point, we’ll look into it, I never thought of it that way!”

Think about it: How could VCs possibly know what’s real? How could they possibly know if they gave bad advice? They couldn’t! Structural stupidity.

The point: VCs are incapable of giving good advice. Perhaps excluding advice about fundraising, or things the specific VC has personally done firsthand.

Unfortunately for everyone, investors are extremely smart people - which means they’re often able to make bad advice sound right and seem wildly compelling. (Yes, I HAVE seen that VC’s new product-market fit thing, thanks.)

So founders, you’re not crazy. Behind closed doors, every founder secretly wonders whether their investors are uniquely counterproductive. Your VCs aren’t special, the industry is just structurally stupid.

-Rob

(PS - PMF4 bootcamp waitlist is now live. Starts July 8. A team from PMF2 went $0-$100k ARR in 10 weeks after the program.)

(PS #2 - if you’re getting SOC 2 compliant in the next few months, reach out! I’ve got some free tools for you to get your product to SOC 2!)