Venture Investor’s Playbook: Part 5

SSWISH — How to Win, Support, and Harvest Opportunities

Chip Hazard; General Partner, Flybridge

Every founder should be treated with the utmost respect — after all, they’re the ones putting their livelihood on the line. Respect means being responsive, prepared, and engaged, asking probing questions in a thoughtful, empathetic way, and, during the investment process, being clear on next steps and the steps to get to yes.

The second step to winning starts in the first meeting with a new potential investment and continues through the diligence process. No founder wants to feel like they have to educate potential investors on the basics. Another reason why having a point of view on markets and going deep in certain segments matters is that it allows you to start the discussion with a founder halfway down the field, ask better questions (which helps with selection), and leave the founder feeling like you can be a true thought partner with them in building the company. Related to this, speed matters. Just as no founder wants to educate potential investors on the basics, no founder wants the fundraising process to take longer than it needs to.

Stand for something so that when the founders are thinking of forming a group of investors (aka a syndicate), they’ll say they want you involved for specific and concrete reasons.

If other companies in which you or your firm are investors support those reasons, don’t be shy about connecting the new potential founders with your existing portfolio companies as a reference. For every founder out there, investor diligence such as this is critically important.

  • Sometimes, it might make sense as a seed/angel investor in such a company to sell a portion of your holding if the private market valuations seem high and you have a need or desire to recycle the capital into other new investments.
  • For a company where the market has taken longer to coalesce, and capital is going to be scarce, have a conversation with the team about whether they would be better served to turn their talents to other opportunities or join another company with higher potential. These are not easy discussions, but as an early-stage investor, getting your money back on mistakes can help turn a good fund into a better one (although only salvaging mistakes will never make for a great fund).
  • Companies in between these two ends of the spectrum are harder. Some businesses experience a golden moment when performance and potential are excellent, but the potential future risks are equally high. In this case, you can generate significant (but generally not outlier returns) early in the company’s life. This analysis requires weighing the risks and opportunities in consultation with the company’s founders about their goals and objectives. Similarly, some companies have high potential that is not married with excellent performance. In these cases, ask what drives the underperformance and how fixable it is relative to potentially looking for an exit?
  • For more on this topic, I wrote A Founder’s Guide to M&A a few years back that contains some ideas relevant to this discussion.

Seed-stage VC working with entrepreneurs to leverage the power of community.