The Secret Reason Why Venture Capital Investments Often Fail
Forbes, Amy Blankson
May 8, 2018
Failure is not an option. This is the mantra that many entrepreneurs cling to as they fight their way through the bowels of startup hell. And yet, 90% of entrepreneurs wind up doing just that: failing. Sobering statistics like this one cause have given rise to even more pressure-laced platitudes: only the strong survive, where there’s a will there’s a way, do or do not there is not try. While the investment into entrepreneurs is a $41.6 billion industry, what is the cost of the psychological fallout?
Nataly Kogan, serial entrepreneur, former venture capitalist and bestselling author of Happier Now, knows a few things about those costs. But her story is not one that you would expect. As a refugee from the former Soviet Union, Kogan emigrated to the United States when she was just 13 years old. She went from living off of food stamps in the projects of Detroit to graduating from college with high honors, landing a job at McKinsey, becoming a managing director at a venture capital firm — all before she turned 26. But despite this meteoric rise, Kogan felt unfulfilled. She began to research positive psychology and delved into Eastern disciplines like yoga and Buddhism. Eventually, she created a learning and technology platform called Happier that led to international fame.
But if you think her story ends there, you would miss the most important part. Shortly after launching Happier, Kogan crashed. Reflecting on that period of her life, Kogan shares: “By age 39, I lived in a state of constant dread. I ran myself ragged and berated myself for being so pathetic. More than once I found myself in my car outside my office in the early hours of the morning, so fatigued I didn’t know whether I was coming or going. I would black out from exhaustion . . . I was on the brink of losing everything — my company, my family, my sanity, my health.”
Fortunately, an investor in Kogan’s company saw what was happening and gave her an ultimatum: she had to visit his life coach or he wouldn’t work with her anymore. Grudgingly, she went. The life coach helped her to understand that she couldn’t fix parts of her life without helping herself first. She realized that she needed to put things in her life on hold until she could set things right in her life again.
Thus began her very personal journey of introspection. Through this process, Kogan began to see that self-compassion wasn’t a reward for hard work, but rather, a crucial component of resilience. In an op-ed she wrote for the Washington Post, Kogan shared that “as much as I used to worship grit and dismiss self-compassion, I’ve discovered that they are inextricably intertwined. Combining the two has enabled me to achieve things that seemed impossible at my lowest point, including repositioning my company, writing a book and taking up abstract painting.”
Looking back, Kogan was so grateful for that investor who had the courage to call her out and the grace to give her space to fix things in her life. In her recently released book Happier Now, Kogan details her journey and lessons learned, hoping that her vulnerability and authenticity in sharing her story will help others who are also struggling.
In a recent survey of entrepreneurs, 30% reported a lifetime history of depression. In fact, 72% of entrepreneurssuffer from mental health problems as compared to just 7% of the general public. While it’s unclear whether or not entrepreneurs have a predisposition to mental health issues, it’s evident that the stress of the industry exacerbates the issue, giving rise to the term “Founder’s Blues.” According to Fortune magazine, 30% of startups fail due to the emotional state of their founders (13% due to loss of focus, 9% due to loss of passion, and 8% due to founder burnout).
Kogan recalls the story of one CEO in NYC whose company began to struggle financially. His co-workers knew he was under stress, but they also noted that he began to make poor decisions. What they didn’t know was that the CEO was having trouble sleeping and his overall health was declining. One day, the staff noticed that it was 4 p.m. and the CEO had still not shown up for work. Later that day, he was he was found hanging off a balcony in a California hotel, strung out on cocaine. Kogan asks, “Were there signs? Yup every single day.” Yet, all too often these warning signs are covered or missed in the professional setting.
Unfortunately, stories like this one are not uncommon in the startup industry. Kogan believes that venture capitalists have a crucial role to play in shaping the landscape of well-being among entrepreneurs. She has a call to action for venture capitalists:
- Mandate that entrepreneurs invest in their physical and emotional well-being. Instead of just tracking how many downloads an app receives, ask: how many hours of sleep are key leaders getting? Are they taking care of themselves and incorporating positive practices in their lives? Knowing the tie between leadership and the success of an idea is so strong, Kogan believes that investors should make these standards part of the monthly metrics for health of the company. She adds, “If boards required CEOs to practice good physical and mental health, I guarantee that CEOs would start doing it.”
In an article on the changing nature of work, Forbes Contributor Amy Morinwrites, “Emotional difficulties aren’t a sign of weakness. It’s just a fact that the entrepreneurial lifestyle often lends itself to reduced resilience against mental health issues. Take a proactive approach to preventing emotional problems when you can, and if you’re already noticing the psychological toll of business ownership – seek professional help before it gets worse.”
- Create psychological safety within accelerator groups and entrepreneur circles to talk about challenges with mental health and well-being. It’s not enough that entrepreneurs whisper veiled confessions to each other about struggles with sleep, eating, anxiety and relationships. These issues are far too common and entrepreneurs need to have the freedom to get help when they need it without jeopardizing their startup’s future. Too many entrepreneurs feel like they can’t even admit doubt about a plan or fear of possible failure because doing so would be an investment risk for their company.
“Entrepreneur circles can’t just talk about positive practices,” says Kogan. “You can’t give what you don’t have. Entrepreneur suicide and depression is at an all-time high. If you neglect health, you make sh*t decisions. You might look strong, but you are not. It’s not just nice to find balance, it’s essential. Chemically and biologically, it’s not possible for me to be creative, productive, connected if I don’t take care of myself. It’s not an “extra;” it’s a non-negotiable.”
Kogan feels passionately that the startup industry can do a better job of fueling the health and happiness of entrepreneurs. Certainly, entrepreneurs are ultimately responsible for their own self-care, but investors can either be a lynchpin or a lever to create change. Investing in mental health is an investment in overall success. When investors realize this, then we will truly tap into our full potential as creators.
If you or someone you know is experiencing work-debilitating depression or having suicidal ideation, please contact the National Suicide Prevention Hotline to seek help.