The Softer Side of the Entrepreneur/VC Relationship
I was a venture capital investor for about five years prior to starting my first healthcare company. It gave me the opportunity, while I was still pretty young in my career, to learn the process of sourcing, investing in, and then owning an interest in a highly volatile start-up company. I had a mentor who said to me once, “You don’t know what you invested in until you get to the first board meeting”. He also said, “The easiest thing you’ll ever do in this business is write the check”. The point is that the work of the venture capitalist begins once they are an owner.
And for the entrepreneur that just deposited the check, they also absorbed a new relationship to manage, which can be amazing or absolutely terrible. Since I have been on both sides of the table, I want to share some of the keys to successful company and venture investor dynamics that can materially impact the company’s success.
Beyond wanting the check, here are the top 5 asks from an entrepreneur when working with a venture capital investor.
1. Actually Help me Drive Growth. Entrepreneurs need to be careful about the venture capitalist paying lip service to all the things they will do to help them grow. Giving access to a rolodex is not sufficient. Having contacts at the target firms where a big partnership could be done is not sufficient. The right investors walk into the meetings with their company and they pitch together. The investor is invested in doing the work at the early stages.
2. Don’t Forget About Me. Many venture capitalists sit on so many boards that they don’t have enough time to help any of their companies very much. Find the investor that has a method or a model for how he/she spends time with their companies and doesn’t get so overburdened that they forgot you were even an investment (until something goes terribly wrong and then they'll remember for sure).
3. Ask me, “How am I really doing”. We are seeing a trend in Silicon Valley of venture capital investors bringing with them leadership and life coaches into their portfolio companies. Why? Because being an entrepreneur responsible for other people’s money is super stressful. Venture investors that understand the human element are so valuable to cultivating the relationship over time.
4. Be Honest When the Chips are Down. Building a company is never just straight up and to the right. Things happen…always. When they do, it can create a lot of tension between management and the investor. For the CEO, it is really challenging to not know where you stand with the investor. Are they going to continue to support you? Are they going to cram down other investors? Am I about to get fired? Ambiguity sucks. Strive for a transparent relationship.
5. Give me the Permission to say, “I Have no F**ing Idea”. Often times entrepreneurs feel like they need to have all the answers when interacting with their investors. Actually the opposite is true. Great investors want to know where the unknowns exist and attack them. This is not to say the entrepreneur has not thought about the problem but that it’s okay to say, “I’m stuck”. The best investors provide that opening.
Taking on an investor is a bit like getting married but without much courtship. Venture capitalists that have been around a long time honor that risk and work closely with the entrepreneur to create a dynamic that is healthy for all parties. Entrepreneurs often don’t know what to ask but this Top 5 should spur productive dialogue.