With out founders, VCs don’t exist and with out founders, you’ll by no means make accomplice both. The founders you select to work with and people who select to work with you’re by far and away the perfect proxy for whether or not you might have what it takes to be a helpful addition to your fund’s partnership. That is on each a quantitative and qualitative degree — they’re equally vital because of the lengthy suggestions loops in VC. You’ll be able to management the inputs beneath; you possibly can’t management the output that’s your monitor document and status.
Shout out to the unimaginable founders who’ve entrusted me with their companies and journeys so far, I’ve discovered a lot from all of you and am pumped for the journey we nonetheless have forward: Victor, Peter, Ugo, Max, Dan, Ciarán, Raffi, Issah, Mark.
Lesson 3a: make investments time to essentially know your founders
VCs wax lyrical about investing in “individuals”, however what number of can genuinely say they’re really near the founders they’ve invested in? Should you’re not near them as individuals, how will you perceive their motivations, their fears, and the context of their decision-making?
You don’t have to be greatest buddies, however you have to be a superb lively listener and you need to know what’s holding your founders up at night time as clearly as what’s holding them excited.
Sooner or later, the virtuous circle will hopefully reward the depth of your relationship — within the quick time period a glowing founder reference for a brand new funding, in the long run investing in that very same founder’s second enterprise.
One in all my portfolio firms had a second the place the founders thought they could have to promote. They weren’t satisfied the chance/reward for constructing out a brand new class with out a confirmed exit panorama was there for them and so they didn’t wish to “throw away” years of onerous work by ending up in no-man’s land (you’ve raised an excessive amount of VC capital for a small exit, however you possibly can’t develop giant sufficient to IPO or be a serious acquisition goal). We did quite a lot of desktop work, however what actually counted was being shut sufficient as a staff to have the ability to speak by means of the human feelings and motivations and work out the proper reply collectively. In the long run, we did determine it out and I imagine that course of gave us the religion we now have in our capability to turn into that category-defining firm within the house.
Lesson 3b: scale your self
The VC-founder relationship is likely one of the least scalable elements of the job on each side. It’s the private, personalised contact that counts. Nevertheless, you possibly can nonetheless allow a supercharged model of that helpful time.
Each investor is at all times too busy, too confused, and has an excessive amount of occurring directly so give your self the help construction to give attention to what actually issues together with your founders on the proper time.
There may be quite a lot of often-overlooked groundwork behind being a board member and mentor. I’ve constructed libraries of templates and examples for all the things from monetary fashions and metrics dashboards to pre-mortems, investor updates, board decks and pitch decks. I’ve a Notion timeline with pages ordered by time durations relative to fundraises (e.g. 1–3 months since pre-seed, 6 months to Collection A) and by operate (e.g. Hiring, Finance, Gross sales, Fundraising) to remind me what to maintain prime of thoughts and when.
Lesson 3c: take the possibility out of fundraising
Your portfolio firms ought to by no means fail to lift due to a sub-par course of. After all, a quantity will fail as a result of they haven’t confirmed product-market-fit (PMF), hit milestones, and so forth or due to unexpected market circumstances. Nevertheless, your accountability is to mitigate as many of those upfront as you possibly can to place your founders’ future in their very own fingers to the best extent potential.
There have been many posts written on the way to nail a fundraising course of (First Spherical, Creandum), however listed here are my clearest learnings. As an investor I’ll information my founders by means of all of those in addition to help immediately on nearly all of them too:
1. Supplies prep. Lower no corners when placing collectively your deck, FAQs, monetary mannequin and information room (industrial + authorized). Achieved proper, you shouldn’t have nearly any further work to do when requested for information by traders.
2. Heat up halo buyer references. Make certain your prime 3 halo prospects are primed and able to converse to your potential lead investor(s). That is usually the ultimate, essential gate in a VC’s course of.
3. Observe pitch. Both you or ideally a colleague who’s much less near the enterprise ought to do one or two follow pitches plus direct suggestions earlier than going out to market.
4. Investor masterlist. It’s best to have a complete investor record with these fields at a minimal: Fund, Particular person investor, Wave, Introducer. Wave is vital as a result of your investor record ought to be 50–100 funds lengthy, however you possibly can’t converse to them unexpectedly and ideally gained’t have to. It’s best to begin with a number of funds you assume you might have the least match to additional refine the pitch. You then hit the primary two waves, give every per week, examine the state of the funnel to “deep dive/diligence/and so forth” (5-10 funds right here at anybody time) after which transfer onto intros from the following wave as crucial.
5. Intro emails. It’s best to have a template prepared that you may customise for as many traders as you possibly can — maximising pace and high quality. It’s best to ship this easy-to-use template to all Introducers on the masterlist so there’s no hole within the waves.
6. Weekly check-ins. Typically it is a 5-minute dialog typically a 30-minute one, however you could keep near the founders and the method to know the way to regulate the pitch, when to activate the following wave of intros and to ensure your founders aren’t getting burned out or disheartened by the inevitable no’s.
7. Backchanneling. This is a crucial a part of any course of on the enterprise finish. You or your colleagues ought to have the community to be near the funds which might be at superior phases together with your firm and it’s your job to current a balanced view of the thesis and anti-thesis to make sure the important thing dangers and alternatives are observed and understood.
8. Choice-making. Should you’ve adopted all of the founder classes above, you’ll most likely be the primary particular person your founders name for recommendation on which investor to go together with. You’ll even be shut sufficient to the enterprise to have the ability to give knowledgeable recommendation. Ditto with negotiations from there, each on worth and legals.
Lesson 3d: discover ways to handle startup failure
Everybody is aware of that VC is an influence regulation recreation, however only a few really course of what meaning in follow: most of your portfolio firms will “fail” (both go bust, or fail to exit as a enterprise end result or fail to exit full cease). As an investor, you could discover ways to handle failure on your founders and on your fund.
In your founders, you could be shut sufficient to know when issues aren’t going properly and have sufficient time to do all the things you possibly can to show issues round (from bridge financing to product pivot to staff adjustments). As soon as there’s nothing extra to be performed and relying on whether or not the corporate can proceed buying and selling profitably or has a looming cash-out date, you need to work out a brand new sustainable technique for the corporate, management and staff, or discover a path to exit to a minimum of shield the founders and staff. Empathy and onerous work are what you can provide your founders at this crossroads.
In your fund, you could safe the perfect monetary end result potential. Relying on why the corporate is failing, you need to do all the things you possibly can to search out an acceptable exit path or allow the corporate to achieve a sustainable worthwhile state. When you’ve found out the longer term past the crossroads, extricating your self from shut administration is a difficult however crucial a part of the method to let you refocus your time and power the place you would possibly discover your fund’s fund returner.