Why VC firms should be adding coaching to their term sheets

High-profile founders from Tom Bloomfield at Monzo to Simon Beckerman at Depop are speaking more openly about the impact of running a business on their mental and physical health, and on their family life.

At London Tech Week back in April, a panel of founders, including Beckerman, spoke openly and bravely of their personal struggles as their businesses grew. It was a stark reminder of what success can cost those who found and scale businesses.

Where does coaching and more personal wellbeing support for founders fit among the technical, strategy and business growth support that VC firms offer their portfolio companies? Should they be doing more to support founders, both to protect company value and safeguard personal wellbeing?

Founding and growing a company is hard

From starting a company, to exiting when it is sold, the personal transitions founders go through as their company grows can be thrilling, demanding and personally challenging. When I spoke to Martijn de Wever, Founder and CEO of Floww, he put it bluntly, "founding a company is not for the faint hearted" and he believes that not everyone is suited to the task.

The demands on founders are complex and changing because they need to be good at different things as their company scales. This means that founders have the added challenge of needing to be able to reflect on what they don’t know yet. This takes support. The pool of people founders can look to for that support gets smaller as their company scales, reducing the chances for feedback and sharing challenges.

Some founders are pushed to their limits

Mark Onyet, exited founder of TDX group turned VC at Blenhiem Chalcott, says that starting your own company is "a whole different level of pressure and stress".  This pressure only increases when funding comes in from VC firms. Fundraising in and of itself is a stressful task that takes focus from the day-to-day. In his role as Fintech Sector Director at Founders Factory, Olly Betts speaks to up to 10 founders a day. He said: "Their headspace is taken up by people and relationship issues and the pressures of fundraising. It's relentless."

The impact of this hamster wheel of pressure is that creativity and innovation are negatively affected. Overstretched leaders who are under pressure, on the edge of burnout and exhausted become reactive. This is when the frontal cortex in the brain, which is responsible for rational thinking and creativity, goes offline and moves into protection mode. Running a company from a place of reactivity is exhausting and can lead to burnout.

Is the problem that a level of failure is baked into the VC/investment model?

It’s a hard fact that “early stage ventures, and by extension, their founders” are seen as “disposable” one unnamed VC said. Mark Onyett calls it a “numbers game” where only a small number of companies need to make it big for the fund to get its return. If out of 100 investments, 20 are expected to succeed with one or two being home runs then that leaves a lot of companies (and their people) failing and taking huge sums of investment with them. What if it was possible to improve those odds?

Why aren’t founders accessing coaching and wellbeing support themselves?

If founders are struggling at different stages of their company’s growth, then what is holding them back from seeking support, be that in the form of coaching, mentoring or therapy? Advisor and investor Rob Devey saysthe problem is that "some struggling founders think that they don't need support" and it is precisely these founders that need the most support. He sees a role for personal support at all stages of the founder’s journey.

If founders aren’t seeking support, then should VC firms lead the way?

The signs are that increasing numbers of VC firms are starting to support founder wellbeing come in the form of initiatives from Balderton Capital, Octopus Ventures and Andanda Impact Ventures. These have coincided with founders’ increasing openness about their struggles. Zoe Peden Partner at Ananda said: "We started our Founder Health Initiative more than four years ago because we wanted to holistically support our founders when it comes to their mental wellbeing."

Rob Strathoff, CEO of Liberis, disagrees that it is a VC responsibility to look after founder wellbeing, but he says that they should be taking it seriously given the impact on value. The debate isn’t about whether coaching has a positive impact on founders but rather about how they access it: of their own volition or through a nudge mechanism such as putting coaching in term sheets.

Mini case study: How Octopus Ventures encouraged founders to access coaching

Laura Willming at Octopus Ventures sees company growth through the lens of people and talent. She explains that founders in their portfolio companies were not accessing the vetted coaching resources that they were suggesting, even when they actively encouraged it.

When Octopus struggled to get the founders of their portfolio companies to access the coaching that they were sign-posting, they responded with research. Jeevs Mahil led direct research with the founders of Octopus's portfolio companies to understand and remove the barriers founders were facing to accessing coaching. The barriers they identified were:

  1. Difficult to assess and choose – if you have never worked with a coach before, it’s hard to know how to select a coach. Octopus addressed this by building a community of vetted founder coaches that come recommended
  2. Opaqueness with cost – coaches do vary quite a bit in terms of what they charge, so Octopus created more guidelines for founders on this topic
  3. Worry about spending limited resources on something for oneself – this is both in reference to time and money
  4. Uncertainty about if investors would approve of the cost – this led Octopus to add the requirement to work with a coach into their term sheets

Laura Willming said: “The result of Jeevs’ research was a nudge approach to improving the take-up of coaching by adding the requirement to work with a coach in our term sheets.”

Are these changes the crest of a wave or a drop in the ocean?

The small handful of VC firms taking founder wellbeing seriously is growing. The shift is positive, but they only represent a very small number of the investors out there in the market.

The biggest question for VC firms is really ‘why not?’ Given the vast sums of investment going into companies Rob Strathoff says that "it should be a no-brainer, even if it only adds a 1-2%" across the portfolio.

Whether you are an investor or a founder, the positive impact of coaching should be on your agenda whether you are accessing it for yourself or encouraging founders to do so.