The Dark Night of the Soul is universally understood as a period of spiritual desolation and utter despair. It’s a state of complete hopelessness, when you feel you have no options. Elon Musk suffered the Dark Night when Tesla nearly went bankrupt in 2008. Uber co-founder Travis Kalanick detailed the “blood, sweat and ramen” years that brought him to the brink, in a cautionary tale shared at FailCon, a popular conference where founders talk about the entrepreneurial struggle.
Most entrepreneurs go through a Dark Night—it’s considered a rite of passage. For Quincy Apparel co-founder Christina Wallace, the most gut-wrenching moments were in the 24 hours before payroll, when she didn’t know whether she could pay her employees. Only a few months after launching the fashion tech company in 2012, Wallace remembers laying in a fetal position on her bed in a New York City sublet apartment, sick about what she would say to employees the next morning. Wallace couldn’t help but think, “We have employees with children.”
Her experience is hardly unique.“Every entrepreneur has this moment,” she says, “and no one admits to it.”
During each of the three times Quincy nearly missed payroll, angel investors came through at the 11th hour. It felt like nothing short of a miracle. Although its early investors got Quincy through those near-death experiences, the struggling fashion startup couldn’t gain enough traction to secure a Series A round of funding from venture capitalists and the young company—barely a year old—shut its doors in January 2013.
That too is commonplace. In fact, nine out of every 10 startups in the US will fail, with most not making it past their first round of funding. Failure happens to the most competent, well-positioned founders.
Although the Dark Night (and everything it represents) is universal, most entrepreneurs keep quiet about it. Before he published The Hard Thing About Hard Things, venture capitalist Ben Horowitz wrote for Tech Crunch:
“Over the years, I’ve spoken to hundreds of CEOs all with the same experience. Nonetheless, very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown.”
Why the code of silence? Well, for a lot of entrepreneurs, maintaining a game face, and showing confidence in the project goes hand in hand with persuading talented people to work for them, and investors to fund the operation.
But that disconnect can inflict a lot of damage. For the entrepreneur, it can lead to depression, anxiety, and other mental health conditions—all of which make it even more difficult to perform well. And for employees, and in particular, for investors, it can deny them an opportunity to help.
Of course, not all investors are prepared to offer that kind of support. But with so much at stake for venture-backed startups, investors are a critical force behind the scenes who can shift the scales. They are the ones who provide the founders permission to play the game—to roll the dice and test their ability to build a product and test its wherewithal in the open market. They agreed to join forces with the founder’s team.
Astute investors know how to guide their portfolio founders; others contribute to their failure.
“Many investors don’t realize that our job is to be a shock absorber, not a shock amplifier,” says Bryan Schreier, one of Sequoia Capital’s 11 partners at its Menlo Park HQ. Sequoia, one of the world’s most respected and well-capitalized venture firms, only makes a few investments a year so that its partners have the bandwidth to support their founders. Its team is primarily comprised of former founders and operators.
Investors who empathetically and knowingly walk this line with their startups give them the best chance at success. So do founders who prioritize their mental and physical health.
Andrew Horn, founder of a startup called Tribute, says that “VCs have an imperative to invest in emotionally-mature entrepreneurs because they are the ones who are going to sustain themselves over the long haul. Taking care of yourself and working insanely hard are not mutually exclusive.”
Entrepreneurs like Horn and Wallace and investors like Horowitz and Schreier are among a small, but growing subset of the start-up community who are elevating the conversation around healthy entrepreneurship. It involves getting real about the entrepreneurial journey and our human limitations.
Media profiles tend not to capture these things. “We back-tell our heroic story,” says Wallace. “We mythicize these near-death experiences only after we solve them.”
So what does a healthy entrepreneur-investor relationship look like?
Putting up a strong front
When Wallace came out about the entrepreneurial struggle on her WordPress blog in December 2011, a Harvard professor suggested she take it down. In her post, she compared her startup journey to her experience climbing Mount Kilimanjaro:
On January 9, 2010 around 6:30 am local time I reached the summit, which is the highest point in Africa. If this were a movie and you started watching at 6:27 am you’d see one of the biggest highs of my life over the following three minutes of film. But if you started watching at, say, 3 am you’d see a very different Christina. You’d see an extraordinarily strong woman about to crumble like a pile of Girl Scout cookies.”
Wallace then detailed how she felt that she was in those final hours, close to the summit yet unable to know if she would make it. The Harvard professor came across her reflection online and reached out. “He asked: ‘Are you OK? Do you need to talk? I’m not sure you want this up, I don’t know how people will read it, or if you want them to know that you’re not doing great right now. Maybe, don’t write about it,’” Wallace recalls. “And I never wrote about the struggle again while we were still building Quincy.”
If she had kept her post up, perhaps it would have sparked the kind of conversation that Horowitz, too, sought to normalize. (His book was published later, in 2014.)
While entrepreneurs will talk about their near-death experiences months and years later, it’s rare for anyone to talk about the struggle while they’re in it. “Once you have a track record, you’re allowed to show flaws,” explains Wallace, who is now VP of growth at Bionic. “Until then, you only have a couple of data points, and if your next point is low, people are going to extrapolate a trend line.”
Maren Kate Donovan, who shut down her 400-person company Zirtual overnight in August 2015, called out vulnerability as Silicon Valley’s biggest problem. In a post for Medium she detailed the sort of pressure that entrepreneurs experience from their investors to grow at all costs and how it pushes founders to put up a false front.
“In Silicon Valley, admitting mistakes and showing your vulnerable side is one of the biggest social faux pas that I’m tired of trying to follow,” she concluded.
Elizabeth Yin, a VC with startup accelerator 500 Startups who previously sold advertising network LaunchBit, poignantly captured this ethos in a 2013 post “We’re not crushing it”:
Last year, I ran into an acquaintance of mine, a fellow entrepreneur.
“Hey, how’s it goin?” I asked.
“Great! We’re crushing it. We’re about to sign 3 deals” he replied exuberantly like so many other entrepreneurs I run into. ”How’s LaunchBit doing?“
“Pretty good. Just chugging along…” which is my standard response for this question.
“Just pretty good? You don’t seem happy with your progress…things not going well?” he asked.
So, I’ll be one of the first entrepreneurs to admit we’re not crushing it. Building a business is hard. Crushing it would mean that you are always on the up and up. Crushing it would mean that you are always hitting all your goals. But you know what, that never happens—whether it’s in business or in life. I am never crushing it. We are never crushing it.
As it turns out, the male entrepreneur Yin wrote about in her post was not, in fact, crushing it. His startup folded three months later.
“So many entrepreneurs think, ‘If I can just power through this moment then people will never know things were bad,” Matt Galligan, a serial entrepreneur whose media company Circa folded in 2015, told Quartz earlier this year. “That’s the worst time for you to be doing those kinds of things.”
The conundrum entrepreneurs face is balancing putting on a strong front to inspire confidence from their investors in order to receive follow-on funding and embracing the vulnerability needed to ask for guidance.
It begins with establishing trust
At a Sequoia event in October, Schreier likened healthy entrepreneur-investor relationships to the equivalent of a progression from dating to marriage. Building trust starts with the small things, which eventually snowballs into radical trust with the big things. “I want to be an entrepreneur’s first call,” Schreier said. “When there’s good news and bad news.”
Schreier can uniquely identify with founders because he’s been there. A few years out of college, Schreier took a job with Crossover Ventures. At that point, he had spent a few years as an analyst for Morgan Stanley. “I was trying to advise companies to help them out, but I was advising from stuff I had learned in books as opposed to real-world experience,” he explained. “There was a side of me that didn’t feel authentic or like I was making enough of an impact. That’s why I went to go work for Sheryl Sandberg at Google where I worked for seven years, learned in the trenches, and now I feel a lot more confident in the value that I can bring to the table.”
The partners at VTF Capital (previously Vegas Tech Fund) have experienced a similar learning curve. VTF Capital is part of Zappos CEO Tony’s Downtown Project, an accelerated plan to transform downtown Las Vegas. The $50 million fund deployed capital at a rapid clip, which left less time for mentoring startups during its first few years. Furthermore, its operators did not have experience as VCs (Hsieh for the most part did not engage or offer his expertise to portfolio entrepreneurs).
Only after its two partners experienced failure in their own endeavors did their approach to investing evolve and become more sophisticated; they also decided the fund would no longer be Vegas-centric. They now had valuable in-the-trenches experience. Zach Ware started transportation startup Shift (formerly Project 100), which shut down two years after its launch. Partner Will Young, who is an employee at Zappos, quietly shut down Zappos Labs, an incubator that he had been running in San Francisco. In the wake of both failures, the two changed the messaging on their website:
We prioritize our physical, mental and emotional health over everything else and push our companies to do the same.
Unfortunately, sometimes a healthy body isn’t enough for a healthy mind. Being a founder is hard and lonely and can bring you to a dark place. We’ve experienced some of these demons personally and with our friends and companies. It’s not a taboo topic to talk about with us. We’ve been there.
Like Schreier, Ware and Young experienced increased empathy through understanding the entrepreneurial path—an asset in advising their portfolio founders.
Young shared with Quartz how it takes time to develop a level of intimacy with founders. For example, he recounted a hike with one of his founders in Red Rock Canyon. “Through that close relationship, it’s easier for me to really also understand how they are holding up,” he explained over email. “We’ll talk about stress levels, team morale and other topics that are sometimes left off email investor updates. I openly share with them the stress in my life and things I’m working on.”
George Moncrief, who previously worked for VTF Capital as an entrepreneur-in-residence, says that while the VC-entrepreneur relationship is a two-way street, “what differentiates the good from the bad investors is that good investors ensure that their entrepreneurs take care of their bodies and spirits.”
Is it really worth it?
Some investors argue that because their greatest asset is their capital, the mentorship should be outsourced. Even 500 Startups co-founder Dave McClure, who runs an accelerator, questions how much a role VCs should play in mentorship: “In my opinion, the primary value that a VC brings to the table is dollars. And potentially, introductions to more dollars.”
But his colleague Yin says that regardless, VCs inevitably take on the role of a shrink.
At the end of the day, a successful partnership hinges upon finding a VC who shares similar values. Or taking a different route entirely: In Silicon Valley, bootstrapping is typically underrated and undervalued, but it it gives founders the freedom to operate by their own rules—and protection from compromising their personal values (and health) in the name of appeasing investors. In the aftermath of Zirtual’s failure, Young, who was on the board, reflected on the entrepreneurial struggle and asked, “What about taking out an old-fashioned bank loan?”
There is a high degree of complexity around how and why entrepreneurs take money from VCs; but one thing is for certain: the entrepreneurial path is not for the faint of heart. Most will encounter the Dark Night and inevitably ask this question, at least once: Is it really worth it?
“It is often difficult for founders to remember that the world is not a better place if you build a billion-dollar company that kills you,” says Ware. “I do not yet have a body of data to establish a positive correlation between health and authentic relationships with founders and company performance. And honestly I’m not seeking it. It’s just the right way to do business.”