Founders vest. Why don't VCs?

Elon Musk just put a price on investor value-add.

The Boring Company closed a round earlier this month at roughly $20 billion. Some investors were told they would have to help recruit employees or make introductions to government officials in cities where the company wants to dig. If they fail to produce viable candidates, the company has the right to buy back some of their shares.

When the Journal reported it, Elon was quick to confirm, “True.”

There are a lot of things about this that are very Elon. But the underlying idea shouldn’t be simply filed in the Elon drawer.

Elon can raise capital from almost anyone on the planet. Money isn’t his scarce resource: Engineers, permits, and access are, just like for everyone else. So he made investors earn part of their allocation by supplying them.

Which raises an uncomfortable question: What exactly is an investor worth after the money arrives?

Venture capital used to be fairly straightforward: pick good companies, write checks, exercise good judgment around the board table, make some introductions, help recruit an executive and raise the next round.

Then the industry professionalized value-add.

Andreessen Horowitz was probably the most visible early example, building a captive operating organization around its portfolio. Others followed with talent teams, operating partners, expert networks, customer councils, government affairs, and founder communities.

Thirteen years ago we built Silicon Foundry, an independent corporate advisory firm focused on innovation. In addition to being a good business, we created a juggernaut of corporate connectivity and impact to our portfolio companies.

These innovative initiatives are a good thing. The best of these organizations can be enormously valuable.

It also created an arms race. Or more accurately, a words race.

Today nearly every venture firm has a “platform.” Everyone has a network. Everyone can recruit, introduce customers, and help with the next financing.

Visit a hundred VC websites and you could be forgiven for thinking the same extraordinary group of recruiters, Fortune 500 CEOs and sovereign wealth funds is standing by the phone waiting to help every portfolio company.

Value-add became table stakes in the pitch, but it’s far from table stakes in the product.

A repeat study that asks founders and VCs the same questions about investor contribution found that VCs consistently rated their impact on portfolio companies 7 out of 10. Founders gave them a 5.3.

That’s a pretty healthy bid-ask spread.

The gap doesn’t surprise me. A lot of what gets counted as value-add is actually activity.

And activity is too often noise, or worse, distraction.

An introduction is not a customer. A forwarded résumé is not a recruit. An email to another VC is not a financing. A dinner with a Fortune 500 CEO is not a strategic partnership.

And adding someone to a cc line with “You two should know each other!” may be the most overvalued “value” in venture capital.

Introductions can be incredibly valuable. I make them all the time. But there’s a difference between opening a door and delivering an outcome.

Helping land a customer means knowing who owns the budget, why the deal is stuck, and who needs to make the call. Recruiting isn’t sending six LinkedIn profiles; it’s getting the right person to take the call (and sometimes calling again after they’ve said no). Helping raise capital isn’t sending a list of investors; it’s knowing who understands the risk, getting them engaged, and staying involved until the money is wired.

Those are outcomes. They’re harder to put on a website.

Here’s the slightly heretical version.

Founders vest. Employees vest. Executives earn performance grants. Bankers get paid when the deal closes. Salespeople get paid when the customer signs.

VCs wire the money, get their shares, and generally keep all of them whether the next ten years involve extraordinary impact, a quarterly board call, or something in between.

I’m not suggesting VCs should start vesting quarterly. Capital has value and deserves a return for taking risk. Judgment has value too, and some of the best things an investor does are impossible to measure.

But we conflate two things: the economics earned for providing capital and the premium economics claimed for providing something more than capital.

If your network, recruiting prowess, or customer access is what gets you into the round, earns you a larger allocation, or persuades the founder to choose you, it’s fair to ask whether you should have to deliver it.

Elon decided the answer is yes.

You have a recruiting network? Great. Here are the open reqs.

You know government officials? Excellent. Here are the cities.

Now, deliver, please.

VCs spend an extraordinary amount of time diligencing founders. We call customers, inspect cohorts, check references, model markets, and interview people who worked with them fifteen years ago.

Then we walk into the pitch meeting and say, “We have a great network.”

Founders should return the favor.

You can help with customers? Which portfolio companies did you help generate meaningful revenue?

You’re great at recruiting? Which critical executives did you actually recruit?

You can help with financing? Who took your call and wrote the check?

You have government relationships? What outcome did they change?

And then the simplest one: Give me the founders you’d like me to call and the ones you prefer I didn’t, and explain why.

The best investors should welcome the diligence. Evidence is your friend.

Elon has unusual leverage. Most founders can’t tell an investor, “Bring me engineers or I’m taking back your stock.”

But the underlying idea applies more broadly. Sometimes the hardest thing to find isn’t another dollar. It’s the customer, executive, permit, strategic partner or financing solution that unlocks the next stage of the company.

An investor who can deliver one of those things is worth something different from an investor who knows someone who might know someone.

So maybe we should price them differently.

Elon’s answer was a stick: deliver or risk having some of your stock bought back.

I’d rather use a carrot.

Imagine two layers of equity. Everyone buys the same basic preferred stock. Capital earns the base economics simply for being capital. Investors who deliver what they promised can earn better economics—a premium preferred, a warrant kicker, whatever works.

Recruit the CFO. Land the customer. Unlock the strategic partnership. Bring in the financing that gets the factory built. Hit a clearly defined milestone and earn additional economics.

Capital buys the base. Performance earns the premium.

Investment bankers have lived with a version of this forever. In a multi-lead IPO, everyone may start with a fancy title on the cover, but variable economics are still a jump ball. Who brings the orders? Who performs? Performance determines the wallet.

Why should venture be completely immune?

Here’s where it gets fun. Price the basic equity a little higher to compensate for the potential dilution from the performance pool. Investors can pay the higher price and enjoy the free ride, or back their own confidence, deliver what they promised and earn the better economics.

Greed and ego should do most of the work.

If every VC is as good at value-add as their website suggests, they should love this deal. The ones who don’t deliver simply paid more for the privilege of being along for the ride, benefiting from other investors’ hard work.

As with most of what I write here, the mechanics would need some thought. Attribution gets messy, not everything valuable can be measured, and nobody wants investors chasing bounties. It probably makes sense to keep the milestones few, objective, and meaningful. Allow for founder discretion at the finish line.

But the principle is simple: capital deserves a return. Claims of differentiated value should have to prove themselves, and then be rewarded.

Elon added accountability. I’d just flip the incentive.

Capital buys the basic seat. Performance earns the upgrade. But instead of paying more for the same flight, investors can earn a better deal.