Apr 13, 2017 · 12 minutes

All those entrepreneurs turned VCs… the ones that the industry has spent much of the last decade lauding as the new template of investors, the ones like Reid Hoffman, Peter Thiel, and Marc Andreessen (all of which are Pando investors) who they say you’d keep in the lifeboat, throwing out the rainmakers of old like John Doerr and Mike Moritz… those guys.

Those guys love nothing more than hacking the system.

Love ‘em or hate ‘em: Andreessen Horowitz has been such a unique force in the venture landscape, because it thought of what it was building as a disruptive entrepreneurial company more than simply another venture firm helmed by some former entrepreneurs who wanted to maintain their startup relevance and have more work-life balance.

When I asked Andreessen at a PandoMonthly years ago about criticism from his peers that their army of specialists to help founders build their dreams he said, “I feel terrible! How will they afford their third vineyard?”

Early on, when I exposed the existence of stealthy “scout” programs at firms like Sequoia and Andreessen Horowitz, Ben Horowitz turned the interview into less of an explanation of the programs and more of a call-out to angels who were the ones crying foul at major VCs playing their game. "Lately a lot of people are complaining that they have to compete," he said. "'Gee, we have a civil right to sit on our asses and do no work and make a lot of money.' We don't have a lot of sympathy for that argument. The cry babies of Silicon Valley. They don't want to distinguish themselves by the work that they do, but by the money that they have. If we can be on the other side of that, that's where we want to be. And you can quote me on that."

Andreessen Horowitz and Founders Fund were just the most prominent of a wave of VCs, incubators like Y-Combinator, and other startup forces that sought to differentiate by ingratiating themselves more to founders than their VC peers. It wasn’t all shtick. Partners at Andreessen Horowitz, for example, were fined if they were late to meetings with entrepreneurs, and Thiel, Andreessen, and many other investing stars of the 2000s would rather their investment go to zero than oust a founder as long as he or she still had the faith of their management teams.

There were good reasons there was such an appetite for this. Too many founders in the annals of Silicon Valley history were ousted because they didn’t look the part of a grown-up CEO. Too many boards were beholden to monied VCs. Too many IPOs put too much of the money in the hands of VCs who didn’t do anywhere close to the bulk of the work.

I’ll say from my own personal experience corralling paperwork from the dozen or more small investors in Pando, the person who was always consistently the quickest when I had a request was Marc Andreessen. If you’ve ever built a company, you know how much speed matters, whether that’s speed in getting to a yes or no or speed in turning that “yes” into actual, factual money in the damn bank.  

There was data behind it too: The largest home runs were built by founders who remained CEOs. And early on in the days of the “cult of the founder”, Peter Thiel argued that even if a founder wasn’t the best equipped to run his or her company, displacing them was likely to be so disruptive to the culture that you were better off leaving them in place and letting them fail on their own terms. (This philosophy is more chilling when you consider Thiel’s latest contrarian bet on President Donald Trump…)

We’ve detailed ad nauseum how much of this goes back to Sean Parker, and his influence on Mark Zuckerberg and the fact that founder control worked for the company that would become the super unicorn of the social media era.

But Sean Parker’s Airtime was another touchstone in the trend. It raised some $30 million and did a splashy celeb-studded launch event. And when the company failed to deliver on all that hype, some of the more old-school VCs considered pressuring Parker to return the capital. The new school was going to let the bet ride no matter how badly Parker fucked it all up. After all, that was just one deal. The social fallout from not backing a high-profile founder when the chips were down would cost them far more than their Airtime investment in the future.

That makes total, rational, selfish, financial sense, given not every bet is supposed to make it anyway. Modern cult of the founder portfolio theory.

But Silicon Valley is the place where you can always have too much of a good thing. There is always a hangover, a reckoning, a pendulum swing back that’s going to feel more like a wrecking ball for those at the tail end of a trend. And this is where we seem to be when it comes to the cult of the founder.

In some ways it’s as simple as bros took over from the “geek-chic” generation of founders. To say Travis Kalanick and Parker Conrad have been poor stewards of the responsibility of the cult of the founder mantle is an understatement. What was an elevating of the founder has rapidly become a sense of entitlement that founders can do whatever they want. To paraphrase Richard Nixon: When the founder does it, it is not wrong.

The investment in a company became not a bet on the company, but a bet on the founder. The founder was what everyone was supposed to owe allegiance too. When I was in LA for some meetings yesterday, I asked a few folks about the feeling on the ground about Snap’s up-and-down life as a public company. The excitement-- the faith-- in this company, despite an overheated valuation and a lot of questions about its future is an excitement and faith in Evan Spiegel as a singular figure, a Messiah of Silicon Beach, almost.

In the case of Spiegel-- who is a prodigious product talent despite his bro-y behavior-- that may not be a bad reason to invest. But there is something strangely mystical about what the cult of the founder has become, given how hard nosed and atheist Silicon Valley can be, a sort of divine right to run a company even if you are a man in his 40s who admits he needs to “grow up.” Strange, since it’s gotten easier and easier in a world of angel investors, incubators, AngelList, and low costs of company formation to become a founder.

You guys get it’s easier to start a company and get some bozo to invest than it is to get, say, a senior management job at Facebook, right? Parker Conrad-- a rare founder who was actually ousted-- still had no problem raising capital again. And even still he maintains he’s somehow gotten a raw deal from all these changes:

The cult of the founder has become the divine right of founders to treat people like shit and create toxic cultures.

In some cases this can be corrected, in some it’s too late. There’s a subtle distinction between Conrad and Kalanick: Conrad benefitted from the cult of the founder in that he was given a lot of latitude and benefit of the doubt and another chance. Kalanick benefitted in that he cannot be fired unless his co-founders turn against him. I have spent years now answering the same question at least once a day on social media: “Why hasn’t Travis Kalanick been fired?” Because he controls the board.

And we have a new example of the dark side of the cult of the founder today courtesy of Bloomberg: Tanium.

The narrative is an all too familiar one. From the piece:

Orion Hindawi, who founded Tanium with his father a decade ago, helped build it into the world’s most valuable cybersecurity startup. Its software is used by government agencies and many of the largest global companies, including every major bank, to monitor and protect their networks of devices. Hindawi, Tanium’s 37-year-old chief executive officer, began heralding plans last year to take his Silicon Valley company public and predicted that preparations would begin this spring.

...And then….

At least nine senior executives have left in the past eight months, including the company’s president, chief marketing officer, chief accounting officer and the chief of operations and finance. Interviews with more than two dozen current and former employees, investors and business partners, along with text messages and staff contracts seen by Bloomberg, also suggest the CEO has fired workers before they could cash in their stock options—a practice that had the effect of fortifying his control over the company. The reporting also shows he alienated employees by ridiculing them in front of their colleagues. In staff meetings, Hindawi would frequently call workers stupid or fat, and he spread rumors about a junior staffer’s sexual promiscuity and a former executive’s drug abuse, said ex-employees, who witnessed or were subjects of the insults but asked not to be identified for fear of retribution.

One of the most unnerving aspects of life at Tanium is what’s known internally as Orion’s List. The CEO allegedly kept a close eye on which employees would soon be eligible to take sizable chunks of stock. For those he could stand to do without, Hindawi ordered the workers to be fired before they were able to acquire the shares, according to current and former employees. The alleged process, which would help Hindawi defend his ownership by limiting the number of stakeholders, is notorious inside Tanium. Employees refer to it by various names. Some of Hindawi’s deputies tastelessly called it Schindler’s List. 

Guess what? He and his father control 60% of the board’s voting power.

Sound familiar? It’s almost like unfettered access to billions of dollars with no oversight turns promising founders into total assholes! Who knew?

The Bloomberg piece makes a lot of the fact that Tanium, like Zenefits, was backed by Andreessen Horowitz. But let’s be clear: A16Z is practically the only firm not invested in Uber and Uber is the biggest culprit of all of this stuff. This isn’t an A16Z problem, as much as they were one of several early and vocal champions of founder primacy. This is Valley-wide.

“I blame Paul Graham for all of this,” said one VC to me recently, discussing the stain on Silicon Valley’s reputation caused by Uber.

And yet, the cult of the founder has gone so far that even Y-Combinator’s Sam Altman -- Y-Combinator!-- is arguing for greater board oversight all of the sudden.

Consider -- in contrast-- Paul Graham’s essay on founder control from 2010.

I feel like we're at a tipping point here. A lot of VCs still act as if founders retaining board control after a series A is unheard-of. A lot of them try to make you feel bad if you even ask—as if you're a noob or a control freak for wanting such a thing. But the founders I heard from aren't noobs or control freaks. Or if they are, they are, like Mark Zuckerberg, the kind of noobs and control freaks VCs should be trying to fund more of…

...The switch to the new norm may be surprisingly fast, because the startups that can retain control tend to be the best ones…

...Like a lot of changes that have been forced on VCs, this change won't turn out to be as big a problem as they might think. VCs will still be able to convince; they just won't be able to compel. And the startups where they have to resort to compulsion are not the ones that matter anyway. VCs make most of their money from a few big hits, and those aren't them.

Knowing that founders will keep control of the board may even help VCs pick better. If they know they can't fire the founders, they'll have to choose founders they can trust. And that's who they should have been choosing all along.

… Or not. For the avoidance of doubt, Altman is the first person Graham thanks at the bottom of the post-- er, “essay”-- for reading drafts of it.

Y-Combinator suddenly suggesting founders need oversight is almost as laughable as Uber’s crisis expert Rachel Whetstone quitting because of all the “drama.” The statements are so shocking un-self-aware, so contrary to YC and Whetstone’s very reasons to exist, that they may well be warning signs that things are going to get a whole lot worse, and someone wants some distance. Canaries in the cult of the founder coal mine.

It’s not just disruptive law breaking, sexual harassment, wasted funds, and runaway valuations that are the sins of these divinely empowered founders. It’s physical abuse of women that led to jail time instead of an IPO in the case of Gurbash Chahal. It’s fraud, in cases like Theranos. It’s allegations of theft in the case of Uber and Waymo.

And the downside for VCs is no longer they lose their $10 million or so in a particular deal. It’s that these founders are becoming the pattern, they are running the largest and most highly valued companies in the Valley. Tanium, for one, is Andreessen Horowitz’s largest bet. What was a one-off loss is becoming an epidemic that could be prevented by even a tiny amount of oversight.

For years, Silicon Valley has waited for some macroeconomic correction to the era of unicorns. It never came, thanks to low interest rates and a flood of foreign capital. But the Valley may well have brought it on itself this time: Particularly if Uber goes down, the cult of the founder will have done what the Nasdaq and the private capital markets haven’t.

If even Y-Combinator-- the epicenter of so much of this entitlement-- is suddenly advocating for greater board oversight… how much worse is this about to get?