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Capital crunch shines a light on the importance of founders’ mental health, investors say
April 21, 2023

Capital crunch shines a light on the importance of founders’ mental health, investors say

Reading Time: 6 minutes

In recent years, calling oneself a startup founder was certainly seen as a flex. For those who wielded that role or the coveted CEO position, you were likely to be placed on a pedestal or be viewed as a visionary, aided by a venture capital market that experienced an overextended bull run in the background. 

Yet, behind the glamor and front-page interviews and features, the life of a founder can often cause severe issues such as depression, burnout, panic attacks and imposter syndrome that take a toll on one’s mental health — and, if not treated, their startups and the productivity of those within it — employees, operators and executives alike — can suffer. 

In 2019, a report showed that 72% of surveyed entrepreneurs self-reported mental health issues, according to Forbes. It’s unclear what these numbers are now; however, it is very likely that they would’ve increased significantly in light of the pandemic, the uncertainty caused by the SVB and FTX collapse, and the widespread impact of the economic downturn that has resulted in a severe cash crunch and massive layoffs.

There are other subtler impacts. For instance, the sudden collapse of SVB, despite affecting just a few startups, sent many African founders into panic mode as they scrambled to review banking options to avoid such circumstances creating more uncertainty for them. With never-ending problems, especially in the current bear market, these events highlight the need for founders to prioritize their mental health and for investors and boards to help them seek support when needed. 

Lisa Mikkelsen: I think SVB indeed highlighted the issue to another level. But I think where we became most fascinated with this topic was around the pandemic when we started to see challenges with founders globally, in terms of how they were managing their well-being, how they were getting employees through crisis, how they’re pivoting and trying to rethink their organizations from in-person to virtual. 

On top of the pandemic, we have other kinds of global crises: financial and macro challenges with the markets, now SVB, it’s all layering on top of each other, and it’s creating even more stress than what founders already have. But I think it’s important to note too that this topic won’t go away, even when times are good. Empirical data shows that founders can become destabilized even when good things happen, even when they get additional funding and have huge rounds. Such events trigger different feelings of insecurity and stress. So this is something that’s going to be with us for a long time, irrespective of what’s happening right now. But it is undoubtedly amplified now. 

How should investors help founders manage the stress that comes with fundraising?

Ameya Upadhyay: I would say that raising capital, managing boards and managing employees are probably the three most stressful things in the life of a CEO. How we approach fundraising is to remove uncertainty for the founders. What often happens is that investors are unsure if they will invest in a company and they string along the founder, trying to sense where everyone else is or don’t have the bandwidth to make that deal. And one principle we follow very closely is to be upfront and transparent with the founder, whether we will do due diligence or step out. So, clear, upfront communication that is candid removes uncertainty for the founders and should be the most important thing when approaching a new investment.

Mikkelsen: Also, in the fundraising process, founders should also look for red flags in investors. And to Ameya’s point, ‘Does the investor treat you like a human?’ ‘Do they care about you?’ ‘Are they interested in you as a person?’ When times are good, money is thrown at folks left and right. Africa is seen as this sort of next frontier everybody wants to enter, but do they really understand the relationship piece? And honestly, in my decade of working in Africa, I feel like it’s such a relationship-oriented place where people put relationships first, which is not the case in other places outside of Africa. So when outside money comes in, you must be aware of that and pay attention to it. Ultimately, I think there’s a risk that African founders might take that peace for granted.

So in a way, foreign capital can act as a stressor to African founders.

Upadhyay: Yeah, I think dealing with foreign investors adds to the stress of African founders. There is a vast cultural, contextual gap that they have to bridge all the time when they’re pitching to a foreign investor and trying to justify why they should invest in Africa. And frankly, to these investors, the notion of a successful CEO is built around what a CEO looks like in Silicon Valley. So African founders try to speak that language and be that person. And so one of the things we are very conscious of is letting CEOs off that hook and letting them know that we understand the realities they face. I think that’s something more and more investors are doing. And again, with all of these things, upfront signaling solves many issues. 

How do the founders you’ve come in contact with currently deal with these challenges personally? And how can investors that back them help out?

Mikkelsen: Many of the founders, before we offer any support, in my experience, are aware of, in the first place, that it’s essential to have a work-life balance. Many of them know that it’s important to get good physical fitness and connect with people outside of work to have a trusted circle of relationships. And they know this; the problem is they don’t have time to do it. They have the will to do it. And they know that it needs to be done, but they don’t have the time. And so where I think investors come in by somewhat giving permission. So even if you don’t offer anything regarding mental health benefits to your portfolio, just by acknowledging the stress founders are going through, giving a voice to what’s already happening, and letting them know that it’s okay to take breaks or address these issues.

Upadhyay: At the board level, the bar is really low. I think right now, most boards in Africa need not do more harm. Much of my time goes at the board level to prevent additional work and anxiety from being created for the CEO. So the first thing is, don’t create additional anxiety and additional work that’s not needed. Stop asking for vanity metrics and things that needn’t be done. Acknowledge how stressed the CEO is and how little bandwidth the team has and then everything else builds on that foundation. 

Create a space for the CEO to be human and talk about things that are not going right, encourage authentic conversation, and let the CEO know that it’s a commercial imperative for them to take their whole selves to work. And that it leads to a healthier organization which will prevent more people from leaving through burnout. I think all these things fall in the bucket of what the board can do, but starting with don’t create additional anxiety.

It is said that mental wellness goes hand in hand with creativity, innovation and success. Is that always the case since there are a few examples of sociopaths building innovative and successful companies?

Upadhyay: The empirical research shows that the more someone is ‘touched’ by mental illness, the more successful they actually can be! Think of it like a bell curve. Most entrepreneurs fall into the resilient but not thriving bucket, while on either end, you have thriving or severely mentally ill. We tend to hear stories about the extremes…those who commit suicide…those who may be megalomaniacs…but in reality, most founders fall somewhere in the middle, where they can be successful if they learn to channel their strengths.

Several protective factors can enhance founders’ ability to thrive despite having been blessed with neurodiversity. Having high social capital, a good education and coming from a loving family — are all things that help. On the flip side, some precarities can be preventative of thriving — food or housing insecurity, living in unsafe areas, not having healthcare, etc. Much can’t be changed, but what we can influence in terms of protective factors like increasing resilience, mental health support and addressing loneliness.

We’ve established the importance of founders’ mental health, but what about employees? Toxic work cultures are becoming quite common, and most times, they reflect the behaviors and attitudes of founders. Shouldn’t founders take the mental health of their employees seriously too?

Mikkelsen: Yes, founders should be looking out for their employees, many of whom are from my experience. The most important thing they can do is lead by example. By showing their employees, they are looking after their well-being (taking time off, getting a coach), they are signaling that it is something to be valued.  

The second thing they can do is create an environment enabling individuals to look after their well-being. They may do this by encouraging time off, not emailing people on the weekends, and offering benefits that support well-being (coaching for key employees, mental health benefits like discounted therapy services, etc.). 

Finally, as part of building a great culture, founders should consider ways to keep people motivated about the work they are doing. Inspiring teams by talking about the vision for the organization, offering people learning and development opportunities so they can grow, clearly stating the organization’s core values so people know what the founder stands for, and working at places that align with their values.  

In general, I find that founders are more concerned with their employees than themselves. They just don’t always have a full toolkit to know how to do this. Founders underestimate their power in their companies and don’t always realize that people are watching and following them. 

Reference: https://techcrunch.com/2023/04/20/capital-crunch-shines-a-light-on-the-importance-of-founders-mental-health-investors-say/

Ref: techcrunch

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