Saturday, March 14, 2015

Waking Up In the Middle of the Night - Stress Relief for Entrepreneurs: Watch Star Trek and do Yoga

Recently, I was having lunch with an entrepreneur friend, who was back in Silicon Valley from Russia, and we were discussing the recently released Russian edition of my book, Zen Entrepreneurship, which he had seen with its Russian title,  Biznes v poze lotosa, which  translates roughly to “business in the lotus position”.
At some point in the conversation, he asked me what techniques – meditation, Yoga or otherwise I might recommend for him, because he found himself “waking up in the middle of the night” worrying about his business.  His business issues were even making their way into his dreams, he said.  Was there some way to prevent this?
My first reaction was of recognition. This has happened to me often, and I’ve heard many other entrepreneurs say the same thing over the years. it occurred to me that this must be very common for most business owners — whether you’re self employed, running a small business, or running a startup that has raised millions of dollars.
It is very hard to “disconnect” from the business, particularly during stressful times. In fact, it might be more surprising if you are running a startup and not worrying about the startup in the middle of the night. This article is about some of the causes and ways to deal with entrepreneurial stress, from both western and eastern perspectives.

The really hard thing about startups

I’ve often said that startups are hard, but this doesn’t mean that they are hard work. The thing that makes startups hard is not the amount of hours you have to put in — it’s that you really can’t avoid “taking your work” home with you.
This seems to be true whether your startup is suffering from not having enough money (like many bootstrapped startups) or if you’ve raised millions of dollars in VC or angel funds. In the case of CEOs who have investors, there’s nothing like the sobering realization that they put all that money into you with a certain set of expectations, and those expectations are not being met (since most startups have over optimistic business plans, most startups don’t make their initial numbers).
Even startups that succeed will often flail around for a while before they hit their second (or third) wind. It’s during times like these that stress that’s been building up little by little can suddenly start to feel like an un-liftable weight on your shoulders.
This is compounded by what I call the “self-confidence problem”. Entrepreneurs tend to be people who believe in their own capabilities — and that might have been true in school, where how much they learned was usually a function of how many hours they put in, or even in their previous job, where they were evaluated for a promotion based on their own contributions in relation to other employees.
If something requires hard work, figures the would-be entrepreneur, I can handle that. This usually leads to the belief that working harder can make you more successful. That might be true generally, but when it comes to startups in particular, while putting in long hours is usually necessary, it’s also not sufficient for success. The thing that can be frustrating for so many entrepreneurs is that, sometimes whether a startup succeeds or not is not always under their direct control.
There are plenty of startups where the founders work their tails off, but that don’t make it. There are a million things that can go wrong — you could hit the market too early (or too late), funding which was easy to come by in a boom market suddenly dries up and you find your ship aground prematurely. On the flip side, I’ve seen successful entrepreneurs who had great successful exits because the market was hot, but whose companies would have otherwise failed as stand-alone entities had they come even a year earlier or a year later.

Why Startups are Harder than MIT: What Could Go Wrong

To solidify this point, I’d say that I worked much harder in terms of number of hours spent when I was a student at MIT than I did at most of my startups. Pulling all nighters, usually because a problems set was due the next morning, or cramming for exams, was common-place. The thing is, even though I was working hard, I don’t think I was ever as stressed out at MIT as I have been in my various startups. OK, I might not always have gotten straight A’s, but I knew that as long as I put in the time, I could get a decent grade.
In a startup, rarely is the result a simple matter of how hard you work (or surprisingly, how much money you spend). Things always have a way of going differently than you expect. If you are the founder/CEO this usually means you’re waking up int he middle of the night worried about some thing or another that either has gone wrong, or could go wrong
What could go wrong? Plenty.
Your first major customer cancels an order. The round of funding you were counting on doesn’t come through. Apple (or Facebook or Google) kicks you out of the app store, which was responsible for 100% of your sales. A co-founder has already vested their stock and suddenly quits. A recently hired, much anticipated, star hire isn’t what you expected, or maybe a long-time super-valuable employee decides to leave for a competitor. You miss your projections, not by a little bit, but by more than a million dollars! Or maybe, a recently-fired employee sneaks into your office and steals your laptop, a fact you only know because the police came in and got the surveillance footage from your landlord, and you have to decide whether to press charges.
Yes all of those things have happened. And that’s just in startups that I have personally been involved with. I’m sure there’s a whole world of startups out there with problems that I’ve never encountered.
Whew! No wonder it’s hard not to be stressed out as an entrepreneur.

Brad Feld’s First Rule: You aren’t alone.

I was recently interviewing well known entrepreneur-turned VC Brad Feld for my upcoming book, Startup Myths, and I asked him what advice he’d have for entrepreneurs going through stressful times.  His first piece of advice was to remember that you are not alone.  Many, many people are going through the same thing with their startups, though they are not out talking about it.
Brad was one of the first in the startup/VC community to talk about depression and the role it’s played in his career.  I’ve seen that many entrepreneurs may find themselves sliding into “mini-depressions” when they’re trudging along and come across intractable problems that they just can’t or don’t want to deal with anymore. (if you haven’t read his blog, it’s at and worth a read).
Remembering you are not alone is a great first step.

This reminded me that when I was doing my very first startup in Cambridge, MA, we had a local group of CEOs of local startups that met every so often — I think it was once a month or so. I used to joke that this was “my CEO therapy” group.
The thing was, being able to talk about the things that were going wrong with a group of people who understand and are going through similar things can be therapeutic in and of itself.
I have to admit, sometimes I would come away feeling much better about my current crisis because someone in the group inevitably would be going through something much worse. For example, I remember once I worried about only have runway for a few months of salary left, when I realized that one of the other members of the group didn’t have enough money to make payroll this month!
This wasn’t some startup version of schadenfreude– rather it was the first step to putting things in perspective, which can lead to taking your own problems in stride and realizing that rarely is it “the end of the world”, even if it seems like it right now.
If you don’t have a support group like this, informally or formally, it might be worth looking into joining or creating one. I’m on my fifth startup, and you’d think by now I wouldn’t need other entrepreneurs who are going through similar things to commiserate with. You’d be wrong.
Can’t you just talk to you co founders, investors, or advisors?
Yes and no. I’ve found that even though investors, advisors, and co-founders can be sympathetic, they often don’t understand the stress that a founder/CEO is going through at the moment. Sometimes the thing that you really need to vent or complain about, the thing that’s causing you all this stress, is your investors, your advisor, or even your co-founder!

Western perspectives and Physiological effects of Stress

When I started to think about techniques that could help my Russian friend, I realized that we all have very different ways of getting and dealing with stress. Exercise, everyone will tell you, almost always helps with stress. I agree, but by itself it may not be enough.
There’s a good explanation of the western chemical viewpoint of momentary, flight or fight stress vs. the kind of chronic stress that entrepreneurs live with, in another article I read recently by entrepreneur Hana Abaza (
Since the human body is designed to deal with a stressful situation like a saber-tooth tiger, the chemicals that the body secretes during stressful times are meant to last as long as the “flight or fight” response lasts. Either you get away and survive or you stay and fight the tiger.
Abaza stresses that being in charge of a startup is more like “chronic” stress, and the physiological issues that it can cause. Coincidentally, she also talks about waking up in the middle of the night during her own startup experience 3 or 4 times a week.

A Yogic View of Stress

Being a mystical as well as practical kind of guy, I believe it’s worth looking beyond just the chemicals to see how we get stressed out and what happens in our mind, body and our energy fields.
It’s pretty easy to see that each person is different and holds their stress differently, resulting in different physiological symptoms. Two people going through the same situation have a very different reaction to how “stressed out” they are.
As an example, I mentioned that I wasn’t really that stressed out at MIT as a student, but some other students took it very differently. Suddenly, not being the smartest person in the room hit at the very core of the valedictorian personality they’d built up over their entire lives up to that point — and this caused more than its fair share of angst, depression and worse.
Wilhelm Reich, who along with Carl Jung was one of Freud’s most esteemed disciples, believed that we hold accumulated stress in the fascia — the connective tissues in between our muscles and our bones. He came up with a therapy that involved learning to breathe as a way to “release” this accumulated stress, which had dramatic physiological results in many of his patients, and many consider him the the grandfather of body-oriented psychotherapy.
Surprisingly, this view coincides very well with the Yogic/Eastern view. From a Yogic point of view, this has to do with our individual personalities, our habitual thought-forms, our karmic tendencies. As we build up stress, we create and hold onto little deformations into our energy fields, called samskaras, which accumulate around our body in previously transparent sheaths called khosas.
Finding ways to relieve that psychological/energetic holding not only reduces stress, it lets go of some of the karmic traces we’ve accumulated, clearing up our energy field and our ability to see the situation clearly. I like to use the analogy of a muddy windshield — it blocks your view of what’s really happening. The clearer it gets, the more easily you can see what’s happening around you, and your role in it, and sometimes that’s enough to give us the perspective to get un-stressed.
In the Buddhist point of view, the ability to let go of all that is locked up in our minds (and by extension our bodies) is what eventually leads to enlightenment.
These samskaras are caused by our “grasping” and “aversion” — reactions we have to the situations we find ourselves in. As we hold these thoughts in both our mind and bodies, we have muddied up our system, leading to a lack of sleep and even dreaming about our problems. One reason we use the term “sleep like a baby”, is that babies haven’t accumulated enough “stress” or “samskaras” to disturb their sleep (at least in this lifetime).
In Tibetan Buddhist traditions, there are two kinds of karma: the “big karma” which might involve bad deeds like killing someone or cheating someone, and “little karma”, which are things that have made their way into our minds which we have a had a strong reaction to — exactly what causes the samskaras in Yogic traditions.
To resolve the “big karma” might require lifetimes of work. However, it’s the little “karmic traces” make their way into our dreams, particularly the ones that seem to be regurgitating things we had been worried about all day. So how do you release some of these karmic traces and reduce some of the stress?

Some Tips and Techniques From My Own Experience

My own personal mantra when I am stressed out in a startup is “Watch Star Trek, Walk by the Bay, and Do Yoga”.  These aren’t meant to be actual techniques (you might hate Star Trek, not live near the Bay, and find Yoga to be ridiculous), but rather three different ways that I approach dealing with stress.
  •        Taking walks in Nature.  There’s a little park in Mountain View, just down the road from my office, and only yards away from Google, that always helps me to deal with stressful situations.  It’s called Shoreline and there are paths that are near the San Francisco Bay, and when I’m walking I can see the mountains to the west (green, tree covered), the water of the bay, and the mountains to the east (which look more like the desert).  There is also a nice breeze coming in from the bay (OK it’s not always nice- sometimes it stinks lol).   The thing is, there’s something about gazing at mountains and feeling a breeze going through your body and energy field that has the effect of “loosening up” the things that you are holding – mentally, emotionally, and in your body.  What I’ve noticed is that even if I’m holding a lot of stuff in at the beginning of the walk, by the end my body is more relaxed and I’ve let go of some of the things that are bothering me.  You can find a place like this in your neighborhood.
  •       Watching Star Trek.  This usually gets a laugh when I tell people about it.  The truth is, that  I find we all have certain types of fiction that not only “take us away” from where we are, but somehow feed our soul.  For me it’s usually certain kinds of science fiction or fantasy.  For you it may be Sex and the City or Reality TV!  Well maybe not Reality TV, but you get the general idea.  Find something that you can watch that “feeds your soul”.   For me, watching Star Trek brings back memories of childhood and anticipation of great things in the future, and somehow links to something deep in my soul – maybe because I’m an explorer at heart.  Whatever it is, take an hour every day to watch an episode of a TV show that does it for you or read something that takes you into this kind of feeling. 
  •       Doing Yoga.  I’ve already mentioned Yoga. In fact, the original point of Yoga was to start to dissolve some of the samskaras that we are holding. Too often, in the west, Yoga and exercise are considered the same thing.  I had one Yoga teacher tell me that I'd probably be sore the next day.   She was right. I was not only sore the whole next day, which might work for some people, but didn’t work for me- that's not the kind of Yoga that helps me to release stress.  The key is to find Yoga which an allow you to do stretching and to release, a kind of meditation for the body which allows you to gently release the samskaras building up in your body and mind and energy field.  You’re not training to be a boxer or a weightlifter or a football player!  If your Yoga isn’t doing it for you, I’d be happy to recommend some DVDs or books that have the kind of Yoga.
  •       Meditation.  There are many studies showing that regular meditation has health benefits and leads to stress relief.  There are many different techniques of meditation, but at the heart you are trying to calm the mind and the tumultuous thoughts that we are all caught in the middle of. I think of us as one of those snow-globes that has been shaken up, thoughts are flying every which way and it’s difficult to see. A short meditation can do wonders for letting the snow settle down and get a clear view of what's happening. 
  •       Use Your Work As Meditation.  Being mindful at work can have wonders for not only your concentration but on your level of stress. Rather than worrying about “making payroll next month” (which may be a real problem that you have to deal with), when you are writing some code or doing a spreadsheet or having a meeting, focus your mind and attention on the task at hand.  I call this “using your work as meditation”.   Your mind will inevitably wander.  You bring it back. This is just like meditating but it is more about keeping your mind on what you are doing.  If you do this right, you won’t be thinking about the million things that “could go wrong” if your startup runs out of money next month.  You’ll be thinking about whatever task you are focused on. 
  •        Breathing exercises.  There are many breathing exercises that can help you to release that which we are holding – i.e. that which is causing us stress.  If you are finding yourself unable to sleep, doing a slow breathing exercise is a great way to get back to sleep – almost any rhythmical breathing exercise can work.  Here’s a simple one I learned recently:  breath in fully (even to places that you don’t normally breath into) expanding your lungs as much as you can, then breathe out fully, much longer than you normally would.  Repeat 10 times.  After 10 times, hold your breath for 20 seconds.  Then start the 10 breath cycle again. If you’re like me, somewhere in the 10 breaths, you’ll lose count of which breath you are on and end up asleep.  There are of course many different types of breathing exercises – breath of fire (not recommended for falling asleep), alternate nostril breathing, etc.
  •      Get a Massage.  Since stress is being held in the body, it's amazing how great you can feel after having some body work done.  This doesn't make your stress go away, but it does let you realize that there's something beyond the stress, so that when you start to feel it again, it ends up being a little less "all-encompassing".   

From an eastern point of view, stress isn’t purely a chemical thing, it is the result of our thoughts, emotions, and new “reactions” adding onto the accumulation of samskaras we have in the past (our “karmic traces”).   
Sometimes I like to think of being an entrepreneur as karma+  plan - i.e. we are accelerating our reactions and building up karmic traces with every stressful situation and our reactions to it, which is why we so often end up dreaming about our business problems.  This is why I believe entrepreneurs need techniques like Yoga and meditation even more than most people, because the stress that builds up  can make our lives hell and being off your game can have much more immediate consequences for an entrepreneur who's running a startup.
So, the next time you find yourself stressed out, take a deep breath. Remember you are not alone, and there are other startup CEOs going through what you’re going through. Then, do your own version of my personal mantra: Take a walk by the bay, watch Star Trek, or do Yoga!

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Sunday, February 01, 2015

Johnny Depp, the Mortdecai flop, and Power of Expectations for entrepreneurs and indie film-makers

I’ve written in the past about how investing in indie filmsis like investing in startups.  Although there are also many differences between indie films and startups, today I’d like to further that analogy by using a very recently released film and its not so spectacular success.
Although most of the buzz in the film industry thus far in 2015 has been about the success (and controversy surrounding) American Sniper, an equal amount of anti-buzz is being generated inside the industry about Mortdecai, Johnny Depp’s latest big feature.  In this, I thought there was an important lesson for indie film-makers (and perhaps some startups entrepreneurs too) about expectations and setting yourself up for failure or success.
The reviews are in and Mortdecai, is already being called “one of the worst films of 2015” (quite an achievement since we are only 30 days into the new year), and simply “mortifying”. One article in particular caught my eye, “The Anatomy of a Flop”.   Production budget estimates range from $40 million to $60 million; while that’s not astronomical in the world of Hollywood movies, given that the first weekend gross for the film was only $4 million, it’s pretty hard to see how Lion’s Gate will make a profit on this film.
The funny thing is, I recall being approached over a year ago to invest in this film.  A friend in the indie film financing  contacted me and asked, “ would you be interested in investing in Johnny Depp’s latest film?”  If memory serves, they were hoping to raise the final $10 million or so for finishing the film from outside sources.  As a very big fan of Depp, I said I wanted more details.  I never got many more details beyond the fact that it was called “Mordecai”, Gwyneth Paltrow was co-starring, and they thought it was going to be a big hit!  

My first hesitation was that I was being approached at all to help provide “finishing funds” for a film that was funded by a major Hollywood studios and starred A-level actors.  If there's one thing that Hollywood studios have access to – it’s money.  Why was I, who usually invested in and made very low budget indie films, even being asked? It was a red flag, but not a deal killer.
The second red flag occurred when I dug in more to find out what the film was about.  I didn’t see the wide appeal of the movie or it being the best vehicle for Depp’s eccentric acting.  "But it’s Johnny Depp and Gwyneth Paltrow!" repeated my friend enthusiastically.  As far as I could tell, this seemed to be the only reason to invest in the movie.
I politely declined, since the movie wasn’t really my cup of tea personally, and I felt weird being a very small investor in such a big Hollywood production.  
I had learned that Mortdecai was based on a set of cult novels from the seventies about an eccentric/rogue art dealer.   While I like cult novels in general, I couldn’t see how I, as an individual investor, could possibly make money from such an expensive production (by most indie film standards, spending $60 million is like renting out Versailles for a full year just to have accommodations for a weekend trip to Paris).  
Moreover, given my recent experience with Hollywood accounting and distributors (which I’ll write more about another time), I realized the only way an indie investor would see even a dime would be if the film was a huge, huge hit (of which I was doubtful).
When the trailer and TV spots began to appear last year, I recognized the project, and though I’m a big fan of Johnny Depp and Gwyneth Paltrow (two of my favorite movies of all time are Ed Wood and Sliding Doors), the trailers were terrible enough for me to say pretty confidently that I didn’t even want to bother seeing it.
It kind of reminded me of another Depp outing that involved some kind of spying opposite another Hollywood leading lady: The Tourist, where Depp played opposite Angelina Jolie.  That movie, even though it was a financial success, was forgettable enough (and in my opinion terrible enough) that I can’t even tell you what it was about even though I went to the theater and sat through the whole film! If I strain my memory, I can vaguely remember something about sitting on a train with Jolie in Europe, and Johnny Depp walking on the roof in his pajamas – that’s about it.  Oh wait – there was a surprise ending.  Or was there? Honestly it was forgettable enough that I can’t really tell you how it ended.

The Tyranny of Expectations
I bring up this experience not to say “look how smart I was not to invest in this project” (any VC or angel investor in Silicon Valley worth his salt has invested in enough bombs, and passed up on enough hits to know that it’s not entirely a predictable thing).   Nor is my point here about how terrible the film has turned out - in fact, there are probably a modest number of people who enjoyed the movie and it’s quirkiness.   Actually, the fact that Mortdecai is now being called “one of the worst films of the year” made me more likely to go see it (perhaps in tribute to Depp’s great performance as Ed Wood, who was voted the worst filmmaker of all time!)
My point is actually a different one altogether.  The fact that this film, based on an obscure set of cult novels, was brought to mass market by a major studio spending $60 million dollars set up a certain set of expectations.  Anyone who has seen the previews and TV ads knows that Lion’s Gate must have spent a lot more on marketing – perhaps in the tens of millions – which means that to just break even the film would have to do well over $100 million! (not even counting exhibitor fees, distributor's fees, etc.).
Even for a passion project of Depp’s (since it was revealed that he was the driving force between bringing this one to market), it was marketed to the masses and released on thousands of screens because that’s the only way for it to match those lofty expectations.  This is the blockbuster formula used in Hollywood again and again – get the big stars, pay them a lot, market the hell out of the film with tens of millions more in TV marketing – and release it on as many screens as possible.
I want you to consider an alternate scenario:  what if Mortdecai had been brought out on a very small indie film budget, which is what happens to a lot of passion projects? 
Suppose, like most indie film-makers the film had been made for a few million dollars?  OK Depp wouldn’t have been able to afford to hire Paltrow or Ewan MacGregor, or even pay himself a multi-million dollar salary.   Suppose also that the film had done $4 million in total box office, bringing out fans of the novels and some subset of fans of Johnny Depp? 
The film, even if it was as terrible as it is now, would be a financial success and not, as many industry insiders are calling it now, “Johnny Depp’s fifth flop in a row!”  My point about this film (and many others) is that perhaps the film might have done better with lower expectations and found a niche audience of people who are into these kinds of movies?
Now I’ve never met Johnny Depp personally, so have no idea if he would do a film without his usual multi-million dollar payday, but the point is that there are some films that are never going to be “mass market” films. This is why there’s an “indie” film industry – for financing those passion projects that may not appeal to “mass audiences”.
I’ve seen the same phenomenon in the software industry in Silicon Valley, where investors pump millions of dollars behind teams that try to grow their initial small product idea into a big company very fast.  Many of these efforts fail, partly because of the amount of money they spend trying to “get there”. 
It’s not the investors who are to blame, it’s also the entrepreneurs who eagerly go out and try to raise millions of dollars to become the next “big thing”.
There are many startup product ideas which would work great if treated as a small, bootstrapped company; but, when they are treated as if they could be the next Uber or Twitter or Facebook, they ultimately fail.  By raising a lot of money in the startup world, you eventually end up spending it, and if the product hasn’t met the lofty expectations that you set when raising money, you’re suddenly out of money and the company dies. 
Moreover, because you raised VC money, you tend to have hired a very expensive team of VP’s and other key personnel to bring the product to market, who aren’t going to stick around when the money runs out. 
Hell, the founders have little incentive to stick around when the money runs out because of the way that VC deals are structured – they get their money out first, and unless the company/product is a stellar success, there’s no way that the founders are going to have it be a financial success.
These VC-backed companies, like Mortdecai, I would argue, are a victim of their own expectations.
In many ways, when you raise money for your startup or for your film, by setting a certain budget, you are implicitly (or explicitly) creating a set of expectations.
If I asked you to jump over a bar, and gave you the option of how high the “bar” should be set that you have to jump over, what would you say? If you wanted to be sure you would jump over it, you’d probably say to keep the bar pretty low and would easily step over it. 
However, as a startup founder or film-maker, when you raise money, you are basically being asked how “high” a bar would you like to set for yourself and your project?
Inevitably, most entrepreneurs and indie filmmakers will set the bar as high as possible and try to raise as much money as possible.  Most indie filmmakers would love to get a $40 million budget for their adaption of an obscure set of cult novels into film.  Similarly, most entrepreneurs would love to raise $5 or $10 million or more in their series A financing. 
In both cases, you’re creating a set of expectations for how well your film (or startup) will need to meet in order to  not be considered a “flop”.
So, Mr. Indie Film-maker, and Mr. Entrepreneur, ask yourself for your next project, how high do you want the bar to be set?

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Monday, December 22, 2014

The Hobbit and Silicon Valley: Beware of VCs who get Dragon Sickness

I recently watched part 3 of the Hobbit, the final portion of Peter Jackson’s adaptation of Tolkien’s beloved book.  While there are many aspects of the Hobbit I could write about (it's one of my favorite books of all time), I’d like to explore one that caught my eye and applies particularly in Startup-Land:  Dragon Sickness.

I’ve often compared embarking on a startup journey to be a mythical adventure, not unlike those of Bilbo Baggins and his dwarvish companions. Though startup adventures usually last longer than Bilbo’s journey (which was a mere 13 months!), there are a lot of valid comparisons to be made.  
Like many mythical adventures, startup journeys are fraught with peril; each twist and turn can have life-changing implications; they bring out odd traveling companions and bedfellows (not to mention enemies and advisors); and there is often a seemingly unattainable golden treasure somewhere near the end of the quest!  More importantly, startup adventures can push you out of your comfort zone, and as Bilbo so aptly complains in an earlier part of the Hobbit, adventures can “make you late for dinner”! 
In a previous entry, Gandalf the Venture Capitalist, I focused on some of the positive aspects of having an investor/advisor who is wise like Gandalf with you on your journey.  Having the right investors, particularly those who have personal qualities like Gandalf can be very helpful on the startup journey, and get you out of many a scrape.
In this entry, I’d like to explore the opposite: when an investor turns out to be someone who’s extremely selfish, difficult to work with, valuing money above all else, and causes great difficulty on the startup journey.   
While you can easily get rid of an unhelpful advisor or employee, it’s not so easy to get rid of an unhelpful investor, particularly if they are a VC.  Moreover, many investments in Silicon Valley begin with convertible notes, which have their own special characteristics and once you’ve entered into them with an investor, you may be stuck with that investor until the end of the journey.
Believe it or not, I’ve seen investors (VCs) in Silicon Valley contract something that looks a lot like the “Dragon Sickness” in the recent film.  
In the film, the leader of the company of dwarves that Bilbo is traveling with, Thorin Oakenshield, falls prey to this sickness when the company finally achieves the quest they set out on: to reclaim their homeland in the Lonely Mountain, and more importantly the gold and jewels that it contains.  Their main obstacle is of course, the Dragon Smaug, who is a selfish but formidable figure and who has claimed the treasure for his own.
When Thorin finally achieves the Quest, in many ways because of the contributions of others (Bard from Laketown actually kills the dragon, and Bilbo Baggins rescues and saves the life of Thorin and the company more than once!), he starts to see things differently.  He starts to see himself as “entitled” to the gold, and won’t part with any of the treasure, in the process, forgetting every promise he had ever made to people along the way.
It’s called “Dragon Sickness”  because, as Bilbo tells us in the prologue, “…for dragons covet gold with a dark and fierce desire …”   And it leads to a certain kind of self-centered madness.  As the first the dragon say and later Thorin finds himself echoing:  “I will not part with a single gold coin.”   
It's usually typified by someone whose only goal is to “possess as much of the treasure as possible” without any context or caring how their relationship with others are impacted can fall pray to this sickness, just as Thorin does when he finally takes over the gold. In Thorin's case, it was his relationship with his companions, the residents of Lake-town, and even the elves.
Let’s summarize revisit what happened to Thorin and see if this might apply to anyone we know in Silicon Valley:  Achieve a treasure, largely through the efforts of others, claim as much of it for yourself as possible, and refuse to give up any part of it, ignoring previous agreements about sharing.
While some entrepreneurs definitely fall prey to dragon sickness themselves (I may do another entry on this another time), I personally have seen it more with investors in Silicon Valley than in founders.  They often forget whatever agreements were made in the past and decide to find a way to maximize their “take” right at the end.  
Since I moved to Silicon Valley in 2007, I have seen this first-hand several times, usually when a company is about to be sold.  I’ve had VCs say they want more of the gold than they are currently entitled to and want the founders to take less.  Of course, they don’t say it that way, like a sneaky, experienced dragon they speak in sweet tones and make it seem like what they’re proposing is “the right thing to do” even though it benefits just them and hurts others.
Moreover, while a company is not a zero sum game at the beginning, when a purchase price has been negotiated to sell a company, it does suddenly become a zero sum game – i.e. each dollar that goes to someone else, doesn’t go to you.  
They often, though not always, imply that they won’t go along with the sale unless they are "satisfied".  Now, many investors have vetoes over selling the company, and while VCs don’t like to use vetoes explicitly, investors can cause plenty of harm when a sale is happening.  This is doubly true if the company is being sold, or even if the company is not doing well and is about to run out of money, and needs to raise money quickly at whatever valuation it can get.
I had one entrepreneur tell me that he thought that what the VC was doing was basically extortion. While I wouldn’t call it that, I would say that someone whose only desire is “purely financial” or "purely transactional" will do whatever they can to make sure they get “as much gold as possible”, no matter what.
There are of course many ways that a bad investor can be destructive to a startup, but this is one of the most frustrating ways.  It’s like a serpent that you've let into your house, which starts to eat the company and the team from the inside.  This usually happens in two instances: when the company is doing really well financially (and everyone is getting greedy), and when the company is not doing well and the company needs to either do a fire-sale or raise money quickly.
This is why it’s important for entrepreneurs to vet investors in the same way that VCs vet entrepreneurs.  Many entrepreneurs are so happy to be getting “money” that they don’t consider the ramifications of who they’re bringing into their adventure.
I’ve often said that it’s pretty easy to tell if a co-founder that you don’t know well is easy to work with in a place like Silicon Valley.  Because people here usually start multiple companies, you just see if that person’s co-founders started another company with them. If they did, then that person is probably relatively easy to work with (or at least acts reasonably when things get tough).   Of course, if their co-founders didn’t start another company with them, it doesn’t absolutely mean they are hard to work with, but it’s a pretty good indication.
Similarly, you can do the same kind of research on VCs by interviewing founders of companies they have invested in before.  Of course, you have to interview more than one – preferably one whose company was financially successful and one whose company failed – you will probably learn much more about the investor from the failed company than you will from the successful one! Each situation provides a ripe environment for the dragon to come out, even when they seem entirely reasonable and on your side when you’re getting your financing.
So, how can you spot an investor who’s likely to fall prey to “Dragon Sickness” well before you get to these stages?  It’s not easy, but here are things to look for in both your own company and others founders experience with investors.
  •       Look for investors who are looking for an advantage over everyone else.  I’ve seen some investors who not only want to invest, but they want a better deal than the other investors they are investing alongside them.   Now, don’t get me wrong, if an investor is doing services for you beyond just the money, it might make sense to give them more (perhaps warrants or just pay them for their services).  But when an investor, at each juncture, co investing with others, tries to get advantages over the other investors in his round, asking for rights they don’t have, that’s a sure sign that they may turn out to be slimy when push comes to server.
  •      Every discussion is like a zero-sum game.  When startups first get going, they are not a zero sum game.  That's why it makes sense to take investors in the first place, by giving up shares of the company, you are theoretically expanding the pie for everyone. When every part of the negotiation to do a deal feels like they are playing a zero sum game - not willing to give in to anything, you're starting to see their personality seep out.  If they are like this when there's plenty for everyone, what will they act like upon a sale of the company, where it really does start to look like a zero-sum game?
  •  Doing what’s right for them vs. what’s right for the company.  I’ve seen many investors push companies to do deals that are right for them but not right for the company.   On the flipside, I think having board members who are on other boards in the same industry can be extremely helpful, but the key is whether they “insist” on doing things their way even if it doesn’t make sense from the founders and other investors perspective.  It’s more about the way they do this – again speaking in sweet tongues and making it seem like something is “best” for the company when it’s actually “best” for them.
  •  Not Participating.  If a VC Fund puts in money at the beginning, or while the company is doing well, but are unwilling to support the company in any way financially when the company is not doing well, this is a sure sign that they will be a tough investor to work with and will try to manipulate events so that they get “more out” than their fair share by withholding consent.  Like a "fair-weather" friend, the a "fair-weather investor is the worst kind to have.  Now, VCs have obligations to their general and limited partners, so they can't always put in more money when they personally want to without their partners consent.  But any serious VC Fund, which has set aside money for follow ons, should be willing to put in their pro-rata into subsequent rounds, even if  they aren't investing a lot. When VCs don't do this, it scares off new investors and actually hurts the company's chances of raising more money.  The new investors start to think, there must be something seriously wrong with the company.
  •   Beware of well-known investors with big egos.  Sometimes, an investor, because of their firm or reputation is known as a "big wig" and has developed a big ego.  There’s of course nothing wrong with bringing in well-known investors, it is often a benefit to your company, but sometimes their reputation and how much money they’ve made in the past belie the specifics of how they acted behind closed doors.  Most hollywood stars, for example, are nothing like their public personas in private.  Many comedians aren't funny and many super-likable TV stars are not really nice guys behind the scenes.  The same is true with VCs.
In the film the Hobbit, to help break through Thorin’s Dragon Sickness, Bilbo, the "junior member" of the company,  does something to try to get Thorin to do what’s right for the Quest and to others that Thorin had made promises to.  He willfully gives up most of his share of the treasure!
I’ve often had investors ask founders to take less than their percentage of the company so that they could have “more”.  Usually this comes out of pure greed, which is pretty common in Silicon Valley investors (and even in some entrepreneurs).  But it also comes from ego, which is sometimes even more common.
Luckily, I and other entrepreneurs have seen situations where, like Bilbo, some founders are willing to give up a chunk of their piece of the treasure upon a sale, in order to make rogue investor or founder to go along with a sale that the founders wanted to do.   They are doing it not as a reward to the investor, but for the greater good - they want a deal to get done and no longer want to work with the investor inflected with dragon-sickness, so they're willing to give up something to make it happen.  This isn't necessarily a sign of weakness (though dragon-sickness infected people might think so) - it's being practical and thinking of others as much as yourself.
So, when talking to investors, do your own due diligence on them. Find founders of companies that they do not recommend you talk to, you can usually get to them through friends of friends.  
The real question you need to ask yourself is: are you getting a Gandalf, or are you inviting Dragon Sickness into your little startup?  I’ve had both, and it’s much more fun to have Gandalf!

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