What Founders Get Wrong About Venture Capital

Michael O’Brien joins Richard Lowe (The Writing King) on Leaders and Their Stories for a straight-talking look at venture capital from the investor’s side.

As managing partner of Shield Venture Capital, Michael explains why startups really fail, why founders should raise only what they need, where AI sits in the hype cycle, and why founders hold more leverage than they realize.

Michael O’Brien is the managing partner of Shield Venture Capital, where he invests in and advises startups. He focuses on team strength, disciplined fundraising, and emerging areas like AI and the Internet of Things.

For more conversations like this one, see the Leaders Hub.

DISCUSS YOUR BOOK

Full transcript of the interview follows.

Richard: Hello. This is Richard Lowe, and I’m here with the leaders and their stories, podcast I’m the writing king and ghostwriting Guru. And this is Michael O’brien, and he’s got some interesting things to say about getting venture Cap. Some of the mistakes and challenges that people have and how they work through those. So, Michael, take it away.

Managing Partner at Shield Venture Capital

Michael O’Brien: Hey? Thank you, Michael O’brien, I’m the managing partner of Shield venture. Capital. I came to venture capital through a roundabout route. I came from advocacy and government relations. And for the last 15 years I was running a government relations firm focused on startups and early stage tech. And so that was the the interactions with founders at at mob ventures are or mob advocacy.

Our government relations firm told me that you know early stage founders as much as they needed our help on the government relations side. They needed help on the, on the fundraising and and founder Founder Advisor Level even more. And and so at the beginning of 2024, I set out to to raise a a venture capital fund.

We completed our our 1st 1st close at the end of 2024, and you know we’ll be deploying capital throughout 2025 and most of 2026.

Why Startups Really Fail

Michael: Yeah. I would say, yeah, I mean the The number one reason startups fail is collapse of your team. I think that is first and foremost the biggest reason early stage startups fail. But the second biggest reason is they run out of money. And you know oftentimes it doesn’t matter how much you raise.

If you’re not planning properly. you can easily run out of money. And it’s happened. It’s happened to good founders. It’s happened to bad founders. It’s you know, it’s it’s a critical part of of moving forward. You know. I I think some of that can also some of that blame can also lie with your investors because they should.

They should also be following your financials. And you know. yeah, I had. I had a Vc. Friend of mine tell me that they had a founder project them in into bankruptcy. You know their numbers just didn’t add up, and they knew they weren’t going to add up and as much as they told them, hey, this is problematic, you know.

You know, it was definitely a self fulfilling prophecy. So that planning piece is definitely critical. a critical exercise. Don’t. Don’t overlook your numbers.

Richard: Right right, and it’s not that much harder to get a large sum of money than it is to get a small sum of money. In fact, I learned in ghostwriting. It’s the same amount of work to get to a $50,000 contract as it is to get a thousand dollar contract it really is.

It might take a little, might have to close a little harder, because it’s a little more money, but you’re putting in the same effort. So why on earth are you going for the small contracts.

Raise What You Need, Not More

Michael: It is to an extent. You know, I definitely advise founders not to. Yeah, definitely raise as much as you think you need, and then probably a little more. but you know, don’t. Don’t go out and over, raise, because it’s going to make it harder for your next raise, and so you can.

You know, we we invest at pre seed and seed. And so, you know, we ask. you know, How much do you think you need to get through the next eighteen months? And then maybe not double it, but definitely tax on there, because you have no idea what fundraising and the market are going to look like eighteen months from now.

but kind of set benchmarks, hey? This is what we want to have happen in these 18 months. So then, when you’re raising that next round you can show. Hey? We raised this. We wanted to do you know A, B and C, we got a B and C done, and maybe even some of D.

So now we’re here, you know, that shows that shows that you’re going to be good stewards with an investor’s money. It shows that you understand. You know how you go to market it. It shows that you understand how to manage projects and you know that your goal oriented and and are going to hit goals.

And so, you know, when you’re telling somebody with the next round of funding we want to do DE and F you know they have the confidence that you and your team are going to be able to do that.

Forecasting the Tariff Market Drop

Michael: Yeah, I mean the I I I forecasted that. You know the stock market was going to drop with tariffs. But definitely definitely agree that there’s a lot more a lot more impacting what’s going on at the at the stock in the stock market than just tariffs. I think some of that is is record valuations.

Yeah, the the stock market has been, you know, kind of growing in the top 90th percentile over the over the last 20 years. And you know it’s it’s due for some kind of some kind of correction. you know. You certainly have the baby boomer issue people pulling dollars out.

You have. you know, significant institutional investors like Warren Buffett kind of telling people, hey? You know, the stock market’s overvalued, and and it’s you know, he’s pulling money out. That’s a signal to other investors. But you know I’ve always been a believer that you know, within chaos there’s always opportunities, and you’ve got to find them.

I think that’s true in the stock market. I think that’s definitely true in the stock Startup market, where there might be a lot of chaos up at the kind of the macro level with tariffs and and big tech and economy. the startup. The startup world is is in a great place.

They had a correction, you know, a few years ago. The the valuations are very reasonable. The the things people are raising, you know, aren’t obscene outside of AI, you know, AI seems to be raising at rates that are are incredible and far over and above any other kind of traditional startup. You know, there’s there’s a lot of values in the startup world right now.

AI and the Hype Cycle

Richard: Yeah, the AI thing is going through what I believe is going through what’s called the Gartner Hype cycle. And if you know what that is just to explain. That’s where it starts off. They’re doing research and things. So the stock market starts off relatively stable, and then all investors jump on, and it shoots way up.

and then people start to realize, well, the promise really isn’t there, and it just collapses sometimes in as quick as a day comes down to a low level and then comes back and adjust to a new normal. Yeah. And the stock market’s involved in that. Now it’s on the.

It’s on the high end, and it’s going to crash just like every other one of them. And that’s just the name of the game.

Michael: Yep, we are. You know we’re looking at, you know. We’re looking at a lot of AI startups. But we are looking more at how AI is impacting impacting industries. And not necessarily, you know, we’re not gonna we’re not gonna go out and write a check for an AI company, but a company that leverages AI to to do you know regulatory compliance?

Or, you know, some other piece? We’re definitely looking at at seriously, looked at an interesting company the other day. They they’re using sensors and a AI to to do driving tests with no, with no Dmv official in the car, so that you know they’re they’re doing all of the all of the scoring through sensors. And AI.

Michael: Really really interesting stuff.

AI Meets the Internet of Things

Richard: So they’re combining AI with IoT Internet of things. Yeah. that’s fascinating to me. I wrote a book on the Internet of things, and I’ve written several books on AI. So those 2 subjects are fascinating to me, and Internet of things is frequently overlooked by the general public because it’s just not talked about, but all the smart light bulbs and routers and smartphones and everything else is Internet of things.

Michael: Smart, smart everything. I went to a cyber conference once. and there was one of the top security people for the CIA. And he said, You know everything is so connected. You would. You know you would unplug your toaster at night if you knew what I knew. All right. Well.

Michael: Mine, too. But you know that that statement really woke me up.

Michael: As people cut the cord. You know, your advertising has to go somewhere, and it’s going directly into your into your TV. And and those platform providers.

Michael: No, it is not.

Growing Without Debt

Michael: Yeah, we we encourage, you know, if if people don’t need to raise, if if you can grow organically through sales you know we. We encourage founders to to go that route. I think it’s a it’s a better route for them if they can accomplish their goals through that route now.

Not not every company can scale, you know, with that hockey stick, you know. Kinda. Growth line without without venture. But some some people certainly can, and if you can, or if if hockey stick growth isn’t what you want out of out of your company. If you just want kind of steady growth, and you’re achieving that, you know it’s not always a need for for venture capital.

So we definitely we try to counsel people as well, you know. Yeah, we try to be as founder, friendly and counsel people in terms of hey? Is this the right move for you? you know, regardless of of our interest in the company, you know, we there might be companies.

We’re really interested in but still advise the company, you know. Hey? Maybe raising is not the right thing for you. You’ve got these contracts coming up if one of them hits, you know you’re not gonna need us. So

Richard: Right. right? And of course, if you’re if you’re going the acquisition model where you’re acquiring company after company after company, then you’re probably getting a lot of debt.

Entrepreneurship Through Acquisition

Michael: Yeah, it’s. It is a a popular path to entrepreneurship, though right now. Entrepreneurship through acquisition is. It’s a huge, huge market. I think people are buying companies that are, you know, fairly successful. That really have that opportunity to be really successful. And they’re getting gobbled up, you know, which is good for for people ready to retire and and get out of that work.

you know, there’s there’s definitely an an exit market for for those entrepreneurs now more than more than I’ve seen in the last 1520 years.

Richard: Yeah, it’s interesting. interesting. So if you were to sum up in a few in a paragraph or 2, venture cap in the whole world about it. What would you say.

We Need Founders More Than They Need Us

Michael: You know, it’s I tell founders we need them more than they need us. So be, you know. Make sure when you’re bringing on venture capital. You’re bringing on an investor that fits you and your team are aligned strategically and with the same goals. You know, because that’s that’s a huge potential mistake that people make.

And it’s you know it could be could be a 3 year. Marriage could be a 10 year marriage. And and you know those people you want people who are on your side. From the time that they sign and write that check till the time that you grow and and exit.

And so, being careful and selective about who you let on the cap tables is going to be a critical decision that you’re going to make.

Richard: Very interesting. Thank you. Well, this has been a fascinating conversation. I know. I can see you know your stuff. which is great. How could people get hold of you?

Where to Find Michael

Michael: People can reach out to me through Linkedin. Linkedin Slash Michael S. O’brien. You can also email me mob@shielsiol.vc.

Quotable moments