In the venture capital business, there is no established code, like the Hippocratic Oath, but VCs do follow an informal code of ethics and take great efforts to establish and protect their reputations.
If you browse the websites of VC firms, there are hundreds of VCs that talk about how they help entrepreneurs and their companies. Venture capitalists are supposed to be like no other investors. They "add-value" as they try to generate superior investment returns.
Value-Add? How about Do No Harm?
Perhaps, a little humility is too much to ask from some VCs, but I find it surprising that most VCs don't consider the possibility that they could cause harm or destroy value in the companies they are supposed to help (to find examples, Google "VCs suck" - more than 100,000 hits will come up - or browse through TheFunded.com).
The Law of Unintended Consequences states that any action can produce unintended consequences. For example, in the medical profession, physicians are very much aware of the harm they cause, despite the best of intentions.
In fact, iatrogenic illnesses have become the third leading killer of Americans behind heart disease and cancer (the term iatrogenesis literally means "brought forth by a healer"). Every year, more than 250,000 Americans die from medical errors. Medical doctors are thousands of times more likely to kill someone than gun owners. No wonder that death rates actually go down during doctors' strikes!
I wonder what would happen to the death rates of start-ups if VCs went on strike?
Fortunately, the most savvy entrepreneurs are somewhat immune to the potentially harmful effects of VCs. In the first place, they expect the least - even from the best VCs. According to Marc Andreesen (taken from his blog):
"It's important to really internalize that the founders of a startup are the ones who have to make a startup succeed.
The best assumption to make is that your VC's primary value add is the cash they are investing.
Then you'll always be surprised on the upside."
Another reason that a great entrepreneur is less likely to be harmed by VCs is that if a VC makes a bad recommendation - one which might steer the business in the wrong direction - the entrepreneur is able to diffuse the harmful idea and minimize distractions. No harm no foul.
Ironically, it is entrepreneurs who need the most help that are likely to be harmed by VCs. Entrepreneurs who hope for too much from VCs are more likely to waste time and energy following up on dumb ideas or stupid suggestions made by VCs who might stop by once a month in between dozens of other meetings.
My advice to entrepreneurs is that you should think for yourself, even as you seek help and advice from VCs and other "helpers." I certainly would not take any pill from my doctor just because he said I should. I always ask questions and take responsibility for my own health.
Great entrepreneurs build thriving (growing) and healthy (profitable) companies - and they do it with or without the VCs.
My advice to VCs is that you should be much more aware of the harmful effects that can be caused by your comments and actions. VCs are often looked upon as "experts" when it comes to starting and building companies and take positions of great responsibility and fiduciary duty. Such responsibility should be taken on with great care.
Let's all keep in mind that even smart, well trained and certified medical professionals - who take an oath - have been known to cause great harm, despite the best of intentions.