The Venture Capital Blind Spot and Company culture

The world of venture capital is strange. A few thousand individuals invest hundreds of billions of dollars into ventures large and small (Hampleton Partners report that in 2018, $185 billion was invested worldwide). These dollars provide entrepreneurs with the resources and runway they need to create companies that have the potential to change the world.
Venture Capital (VC) firms are powerful catalysts for the development, growth and scalability of new companies. They are increasingly an essential part of the economic infrastructure around the world. Getting investment, alongside sound business sense, can make the difference between becoming a household name like WhatsApp or AirBnB and fizzling out before you take off. In other words, the decisions investors make and the businesses they fund literally shape and impact the world we live in.
Yet there is something about the world of VC that I find disturbing: almost nobody is paying attention to culture. I am not exaggerating.
In the last few months I have asked dozens of founders and CEOs for introductions and referrals to culture-driven (or at the very least, culture-conscious) investors so that I could interview them, and most of the time the leaders I spoke with came up blank. There were a few exceptions as certain names came up–Sitar Teli, Nic Brisbourne, Fred Destin, Max Niederhofer and Alliott Cole. I went on to speak to these five culture-conscious investors, individuals who I think are leading the VC pack when it comes to applying the insights from the Culture-Driven movement to the cutthroat world of venture investing.
For the most part though, the entrepreneurs I spoke to could not think of any U.K. or European firms or even individual investors who prioritize or even think about the culture within their firm or in the companies they invest in.
This is despite the very clear warning signals about the danger of neglecting or overlooking culture that high-profile cases like Uber and Facebook have given in the last couple of years, and despite the extremely high emphasis that some of the world’s leading companies–AirBnB, Spotify, Netflix, Hubspot and Zappos, to name just a few—give to company culture.
The truth is, when it comes to thinking about and prioritizing culture, most VC firms have a blackhole sized blind spot.
Why bother?
Company culture is one of those things that is so vastly misunderstood that when people realise its importance, they cannot believe they overlooked it for so long. I firmly believe that culture is not only a genuine competitive advantage and a company’s greatest asset–it is also a critical business function, just as sales, marketing and finance are.
As David Cummings, an entrepreneur-turned-VC says: “Company culture is the one sustainable competitive advantage that a CEO has complete control over.”
This sentiment was echoed by Alliott Cole, CEO of Octopus Ventures, in our conversation, where he said: “In the venture business, there isn’t much that one can have complete control over, but the one thing that we can is our culture.”
Of course, it’s not just VCs who overlook (or simply do not comprehend) the importance of culture. Founders and CEOs who pay considerable and deliberate attention to culture are also few and far between. Over the last two years, I have interviewed over 60 culture-driven leaders for my upcoming book The Culture Gene: Leadership and Culture Development Lessons from Startup and High-Growth Companies–but to get those 60 interviews, I had to speak to hundreds of entrepreneurs.
It turns out, from my research, that just one in ten CEOs of high-growth companies is investing in developing their culture. This, of course, is a fundamental issue. If culture is seen as touchy-feely and irrelevant, rather than a non-negotiable business function to be leveraged in order to gain and sustain a competitive advantage, it is no wonder it is underappreciated, underestimated and under-invested in.
In my 18 years’ experience of working with high-growth companies, I can resolutely say this about culture: if appropriately developed it plays a critical role in creating and maintaining a distinct competitive advantage, and it is downright bizarre, strategically ignorant and not only stupid but dangerous, to ignore or overlook it.
The VC Outliers Who Are Doing Things Differently
Ahead of the curve is how I describe the five venture capitalists whose names I kept hearing when I was looking for VCs to interview. Over the last couple of months, I spent time with Sitar Teli of Connect Ventures, Alliott Cole of Octopus Ventures, Max Niederhofer of Heartcore Capital, Nic Brisbourne of Forward Partners and Fred Destin of Stride VC, talking about their approach to culture within their own firms and in the companies that they invest in.