When a VC Passes, And Is Wrong: Real Talk Between Me and Ethena’s CEO Roxanne Petraeus

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The Four (!!!) Checks I’ve Written The Company Since Saying “No,” Never Bought Me As Much As Saying “YES!” Would Have In The First Place. An Investor and a Founder Postmortem a Mistake

The common VC passes are pretty cliche. “It’s a bit too early for us but we’ll be rooting for you from the sidelines,” “We were intrigued and impressed but just can’t get there at this time,” or just plain ghosting you without any feedback. I’m writing this knowing that despite trying to do better, I’m not absolutely innocent either. Which is why it was refreshing to be asked by Ethena’s CEO to do something publicly that investors normally aren’t interested in rehashing: discuss why we passed on leading the seed round for her startup.

Now, the situation here that enabled such a frank discussion is a bit atypical. Ethena is a SaaS startup building modern compliance training. Their customers include Netflix, Figma, Carta, Zendesk, Notion and lots (and lots) of other enterprises who want something that’s more than a checkbox CYA experience. Something which builds healthier, safer, lower risk workplaces in an enjoyable and effective format. They are now quite successful, having raised a significant Series B earlier this year and continuing fast growth (it’s nice to be selling something that all companies are required to do). And while I passed on leading their seed, I did contribute a smaller amount into the financing, along with three subsequent pro rata/super pro rata investments.

Even more importantly, and independent of whether we were a ‘lead investor’ or not, I’ve had the chance to spend meaningful time with the cofounders over the past few years and consider them to be wonderful friends, in addition to leaders I admire. But the initial pass was, in investment terms, a huge mistake and something I regret. As is the case with startups like Ethena, that first opportunity would have given us a larger ownership stake than all subsequent checks combined. Facepalm.

Their CEO Roxanne Petraeus suggested that talking about this together publicly would be helpful because she’s learned a lot about how she pitches Ethena, and unpacking the conversations we had could be helpful to other founders who are raising. I agreed and we subsequently did a TechCrunch Live discussion together with a follow-up blog post in her newsletter.

The TC discussion was about building, and investing, in undiscovered markets — areas which at first glance might be misunderstood or perceived as ‘too small’ but which are actually quite fertile for venture sized outcomes. Compliance training is an example.

My takeaway from the chat is that Roxanne’s disposition initially was to ‘sell the business, not the vision’ and that reinforced some of the concerns we had about market size and ability to scale sales. Whoops.

We go into more detail in her newsletter which I’ll link here. We get pretty raw in it — I basically admit that my concerns rested about her abilities to lead Go-To-Market and she responds that it’s a little hard to hear she was the ‘weak link.’

People ask me what do I think makes a successful founder and investor relationship and I always respond: trust and context. The ability for an investor to earn the trust of a founder and maintain that over time. And the understanding for the context (industry, culture, founders’ personalities, etc) that surrounds this company so that you’re giving them specific, relevant advice and counsel, not just startup platitudes.

Thank you Roxanne (and Anne) for the mutual trust and context. Despite my mistake, it has made working with you both an absolute joy and I’ll continue asking you to take my capital every time there’s an opportunity to do so!

Oh and by the way, Ethena is HIRING

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Author: hunterwalk