The Cost of Hubris
A few weeks into my first batch as an EIR at 500 Startups, we held a week-long series of talks about fundraising. In those days, fundraising best practices weren’t as widely known as they are today, so the topics we covered were new to virtually all of the founders participating in the program.
Towards the end of the week, I was chatting with Marvin Liao — head of the firm’s flagship accelerator — when one of the founders approached us to discuss his fundraising process. This particular founder was one of the strongest in the batch. He had bootstrapped his company to an impressive amount of revenue, enough so that he should have been able to easily raise a competitive Seed round. But there was a catch.
Despite being part of a mentorship-based accelerator, this particular founder had zero interest in listening to anyone’s advice.
On that particular day, this founder came towards us not to ask questions, but to vent. You see, he had just returned from Sand Hill Road after pitching a top tier VC — his dream investor — and, suffice to say, it did not go well.
Why not? For starters, this founder hadn’t spent any time preparing his fundraising pitch. He hadn’t worked on it, refined it or practiced it. Not once.
Despite an entire week of programming about fundraising, and despite partner-after-partner-after-partner urging him to hold off on meeting with any VCs until he was ready, this founder decided that he knew better then everyone else and sauntered into the offices of [redacted] without so much as a slide.
And he totally, completely, unequivocally sh*t the bed.
It was so bad that the partner he met with at the tier one VC texted Marvin immediately after the meeting to ask, “What the hell was that dumpster fire?”
Watching this founder recount the experience to us was like watching a car wreck in slow motion. His reflection on what went wrong (or, more precisely, his complete lack of self-reflection) was astonishing to me. The entire conversation consisted of him complaining about how clueless the VC was, without so much of a inkling of recognition that he might have gone in unprepared.
When he eventually finished venting and walked away, I stood there with what must have looked like an utterly gobsmacked look on my face. Marvin turned towards me, smiled, and whispered,
“There’s always one.”
After the founder left, I asked him to explain.
“There’s always one,” Marvin continued. “One founder who thinks they’re special. One founder who thinks the rules don’t apply to them. One founder who thinks they know better than everyone else.”
“Every. Single. Batch.”
As my tenure at 500 Startups continued, I was astonished by the accuracy of Marvin’s observation. Every single batch, there was a founder who did this. A founder who took the accelerator’s investment, accepted a place in the batch, and immediately upon arrival decided that they needed none of the advice or education the program had to offer.
Hubris is a funny thing. You have to have a certain amount of hubris to start a company to begin with — entrepreneurship demands the audacious belief that you can create something out of nothing — but the line between confidence and cockiness is a thin one. And landing on the wrong side of it can have a detrimental impact on the trajectory of your company. Whether you realize it or not.
In the 10+ years since that first encounter, I’ve seen similar stories play out time and time again. Oftentimes when founders fall victim to hubris, the results are fatal to their startups. Those that do manage to survive frequently end up so far off course that the company never comes close to reaching its full potential.
I’ve observed some patterns when it comes to founder hubris and wanted to share them in the hope that I can help you to avoid its trap. Here are some common themes I’ve seen over the years:
Early Success
I’ve found that disproportionate hubris is often present in founders who achieved uncommon early success and/or hit significant milestones on their first try. Examples include:
Unusually strong early user or revenue growth
Unexpected virality or marketing notoriety
An unusually easy first fundraise
Founders who achieve such quick wins without realizing how unusual they are often attribute their early success to skill rather than other factors (such as luck, preexisting connections or just good timing). The result is frequently a form of complacency — sort of like when you ace the first few quizzes in a class, get used to how easy it is, and presume you don’t have to study for subsequent ones.
Charisma
In my experience, there is a strong correlation between a founder’s charisma and the likelihood that they develop hubris early in their journey. This is especially pronounced when they have an easy time raising their first round of funding.
In most cases, the initial round of funding (angel and/or Pre-Seed) is driven by narrative. Many founders with strong charisma have an easier time raising their first round specifically because of their storytelling and persuasive abilities. Where things can go sideways is in subsequent funding rounds, when investment decisions are driven more by analysis of early traction, unit economics and so on. I’ve seen many founders who breezed through their Pre-Seed round run full speed into a brick wall when raising subsequent rounds specifically due to a lack of preparation caused by hubris. Moreover, many such founders vastly overestimate the degree to which they can overcome weaknesses in their pitch and/or business with their charisma.
Small Town Founders
This might seem paradoxical, but I’ve found that early hubris is more common in founders who come from outside of Silicon Valley than in founders based in the Bay Area. For as confident and cocky as some Silicon Valley founders come across, they tend to be very well informed about the competitive landscape and the expectations of both customers and investors. Founders from smaller cities — especially ones who get early wins — are often disproportionately lifted up by their ecosystem and can unknowingly end up with big-fish-in-small-pond syndrome before achieving any actual success.
Many years ago, I was introduced to a promising young founder from a small ecosystem whose SaaS startup had surpassed $1M ARR in their first year (this was well before the rise of AI, when doing so was really, really hard). In discussing their early traction, it was immediately obvious to me that the company had a leaky bucket caused by an incredibly high churn rate. Although top-line revenue was growing, it was driven by unsustainable marketing spend. I tried my best to encourage this founder to address the company’s churn rate and its unit economics before approaching Silicon Valley Seed VCs (as they would immediately dig into whether or not the revenue was “real”), but she would hear none of it. Bolstered by local cheerleaders, startup awards and fawning media coverage, she went out and spent nearly 9 months trying to raise a Seed round. Despite countless VCs giving her nearly-identical feedback, she was unwilling (or unable) to change course. The fundraise ultimately failed and the once promising company was acqui-hired shortly thereafter.
Solo Founders
Solo founders are particularly prone to falling victim to hubris because they often don’t have voices around them to provide critical feedback and who they are willing to listen to. I’ve seen many solo founders over the years who simply ignored feedback from employees, advisors and even investors if it didn’t reinforce their preconceived views. When hubris raises its ugly head, it’s almost impossible for someone new to pierce the veil. In contrast, a trusted cofounder can often break through all but the most stubborn cases of intransigence.
One last point before I close — in Silicon Valley, hubris doesn’t just prevent you from hearing helpful advice or critical feedback. It can close doors that you never realized were open. Pay-it-forward culture is a very real thing. But an important corollary is that in an ecosystem filled with people who genuinely want to help, immediately rejecting advice or feedback that doesn’t reinforce your previously-held beliefs sticks out like a sore thumb.
If you read my post from a few weeks ago on snakes and ladders, what I’m talking about here is access to ladders. Many of the people trying to help you can also point you to a ladder, but whether or not they do so will depend on how you react. You don’t have to agree with everyone who offers advice or opinions (in fact, you most certainly shouldn’t). But you should at least listen to what they have to say. Otherwise, you will likely never know what other help they might have been willing to offer.
Instead of pointing you towards a ladder, those individuals will simply redirect their time and efforts towards one of the thousands of other founders hungry for their help.
When it comes to startups, the cost of founder hubris is high. And over time, it also compounds.
