May 30, 2016
Startups and venture capitalists, or VCs, go hand in hand. But one of the primary reasons why startups take to venture capital is because of just that – the capital. But entrepreneurs should expect their investor to bring a whole lot more than just money to the table. Here are seven key benefits that every entrepreneur should expect their venture investors to bring to the table.
Mileage may vary, but it can be assumed that your Series A venture investors will be on your board for five to nine years. That’s a long time to keep with the same investors and not see the value in building a relationship.
Like any relationship, you’ll need to start with a positive attitude and work to dispel any negativity early on. I’ve seen entrepreneurs immediately slap a new investor with unexpected terms after a term sheet is signed, and I’ve seen investors turn up to the first board meeting, demanding that every aspect of the business is run a different way before even attempting to understand the company’s current cadence.
For both parties to create a positive, long-term relationship, it’s important to take your time to build. There’s plenty of time to work on shortcomings, and it will only benefit you and your company to move slowly.
Venture capitalists tend to be networking machines – after all, their success often depends on it. In addition to this level of exposure, VCs occupy a unique position as a gateway to new technology and industry trends. This means that they’re usually able to lean on people they don’t know.
Before every board meeting or conversation, think of who you need to meet. Using both digital and in-person networks to discover who your investor knows, and ask them to put you in touch. As an entrepreneur, you should be able to use this opportunity to your advantage.
The Next Round
It may seem early, but at some point, you may have to raise another investment round, through another private venture round or a public offering. As most investors focus on particular ‘stages’ of investment (seed, Series A, etc), they’re likely to have worked with companies at a similar stage to yours who went on to raise additional funding.
Use that experience. Ask your investor what your next investor is likely to look for. Ask for access to presentations that worked well in the past and – most importantly – before you start your next fund-raising process, ask to present to your existing investors. Their feedback will be invaluable to your future endeavors.
The Critical Hire
The typical venture investor usually has a slightly higher level understanding of any given company. Therefore, venture investors are genuinely rather good at painting the big picture of the company. This can be super-useful when convincing that critical, senior hire to join your company. This is one of my personal favorites. I’ve helped a number of CEOs on this, and nothing feels more awesome than knowing you’re helping build the team.
The Critical Sale
Similarly, you’ll sometimes have a potential customer that needs some extra reassurance from someone who has your company’s (financial) back. As you can imagine, if you’re selling your solution to a large corporate customer, they’ll need convincing that you are not going to go bust in the next year. Having your investor on-board is often the most authoritative voice on this.
No investor or board member can tell you what to do – that’s the great (but terrifying) thing about being a CEO. The buck, ultimately, stops with you.
However, a good investor is an experienced soul, and will have been through many similar trials and tribulations that you’ll find yourself battling against. Some will have done it all before themselves and others will have seen it as an investor with other CEOs. The good investors spot the patterns and strengths, using them to become thoughtful and engaged listeners as you walk through a solution.
On a human level, this can be a rewarding part of the investor/founder relationship – there are many conversations on things like pricing strategies, marketing ideas or human resource issues. But the most memorable conversations are always personal. Dealing with an employee whose facing a difficult situation at home, working through the tough steps that need to be taken when a founder exits a company, and confronting failure – whether this is with a person, team, product or even the whole company. These things are tough, but they all happen, and a good investor will be by your side when you confront them.
Whether you’re selling to another company or taking your company public, good investors will have experience of this. Remember, the best firms will have a mixture of people who have done it with others, and those who have done it themselves. When I took my company public, I wanted to talk people through my experience on a personal level. However, one of my partners advised on over $500B of IPOs and M&As over his career as a banker, which gives him an entirely different perspective on the process. Great firms will have investors with deep experience in this area and be able to bring it bear when you hit that point of your company’s progression.
The best entrepreneurs are resourceful beings who pull in whatever they can from those around them. While that can be tricky to navigate amongst other types of workers, CEOs should be more encouraged to make the most of the relationships with their venture investors.
Though the investor starts by providing the capital your company needs to grow, but the right kind of investor should deliver a whole lot more too.
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