24 things I learned as a Seed Investor — Part 2: about being a Founder
Back in 2011 I decided to switch sides from being a founder to the other side of the table. This text is the result of over a decade of learnings, thoughts, observations and some open questions I collected in VC along the way.
For the past 11 years I built Speedinvest, a pan-european Venture Capital fund, together with a bunch of great people. We started with a 10m $ fund and now manage over 1bn $ in assets. We went from 6 people to over 100 and did more than 250 deals across Europe on the way.
Back then I wish I would have found some advice online, that’s why I decided to reflect on my experience here, hoping it is useful for others, founders and investors alike. My perspective is that of a Pre Seed / Seed investor in Europe, so your mileage may vary.
This is Part 2, check out Part 1 about being an Investor. Caveat: this is a collection of smaller and bigger takeaways that I collected as an investor over the years. It should help to understand VCs better.
Part 2: About being a founder
13. VCs really can’t help
They will try, but they have no idea what you are going through. They offer an opportunity to benchmark yourself with other companies, take your thinking to another level, provide resonance to your plans and get some guidance on the fundraising market, that’s it.
14. Get a coach
Dah. I have never, I repeat never, seen anyone get worse once they started working with a coach. So the mere chance of doing anything better, should be reason enough. I also have never heard anyone say they took a coach too early, in hindsight everyone wished they did it earlier. There are so many flavors available, you’ll have to explore your taste. In some rare cases your investors, or independent board members, might be able to be a coach for some time. It’s a fine line to walk, as they also have other interests and a good coach only serves you.
15. You are not building an investors network by sending unsolicited email updates
Time and time again a monthly report hits my inbox from a company that is not in our portfolio. Often I have never even heard of the company, yet I am presented with a fully fledged view into the business. Don’t do that. It’s a turn off, immediately.
16. Your investor has a career too
Only last year, after 10 years of doing this, a very seasoned founder asked me during our due diligence: “What do you want to get out of this, personally? What does this deal mean to you? For your career?”. Surprisingly that’s not usually a topic between founders and investors. Although this industry is all about growth. So getting a sense of what the person on the other side of the table is up to, what individual (growth) goals are for the people involved, is a good way of being aware of (inter)personal dynamics and might explain future behaviour. It’s a simple question to ask, that might bring valuable insights.
17. Your investor will leave
With the VC industry growing and becoming much more of a career choice it is very likely that you’ll have investors on the captable that will disengage. Individual investors will leave the firm (I am a point in case) and new people will come in as replacement. It seems to me that founders rarely think about what that means. From board dynamics, to situations on the captable, to simple things, like getting physical signatures. Hence your choice of investors is not only a choice of one person, but of a fund and the team that runs it. Be pragmatic and realistic about this and proactively manage the board, instead of letting it happen to you.
18. If you are not in the top third of the portfolio, you’ll get less resources
It’s a hard truth that many founders seem to ignore, also when choosing an investor. You’ll enter not only a competition in your market, but also a competition for resources in your investors portfolio. If you are the only unicorn in their stables, you’ll get royal treatment. If you are one among a herd of hundreds, that might differ. If you are in the lower half, or even the last third, you will definitely feel less love. That is true for time spent, human resources allocated and of course also $ in the bank.
19. That Top Tier Series A fund investing in your Seed round is going to hurt, 99 % of the time
Every investor has been there: you do a Seed round and a Series A fund with deep pockets shows up, opens its deep pockets, ups the valuation and fills most of the round. The deal is off (for you). From a founder perspective this is understandable. But: In the past 11 years I have never seen an example where taking that money has outweighed the risks it brings. Terrible signalling, dysfunctional board dynamics and lots of captable debt. Because: if you do great, they’ll also invest in the next round. If you do medium, you’re probably not in the upper half of their portfolio, they won’t bridge or do the next round. If you don’t go anywhere, they’ll disengage before you know. For those funds those early tickets are “optionality”. That’s like dating multiple people at once. You want an investor that is committed.
20. Pro-rata is the upper limit
Don’t ever expect your existing investors to invest more than pro-rata. If they do, it’s a good sign, but don’t be disappointed if they don’t. Funds operate in clearly defined stages. First because their fund model dictates them to do so and second because they operate in a market of coopetition. No one wants to piss off the people in the next stage, but everyone does some investments in the stage below. Everyone needs the other one, but no one wants to admit it. Pro-rata is also an easy choice. No need for an internal argument, no discussions with founders. Less than pro-rata is a sign, mostly for your position in the portfolio, but sometimes also for constraints in the fund. In fact, you’ll live a better life if you assume your current investors will not invest any additional $. Create situations where they want to invest as much as they can. Scarcity is a language that investors understand.
21. No money leaves the table
Your job as a founder is to get as much money into the company as needed to achieve your goals. Paying (ex-)co-founders, angels, friends, family and fools any money on the way is something that is only possible if you are among the 1% of companies that managed to flip from a buyers market to a sellers market. That means restructuring your captable is going to be painful. Very few people get rich from starting a company unless a lot of other people get rich before that.
22. Board composition and management is an art
I have spent countless hours on board meetings and being on one that is a. useful and b. worthwhile is the exception rather than the norm. It’s fascinating how investors have accepted bad boards. One reason might be that they rarely have agency to influence board composition, unlike founders. For founders this should be top of mind. You could do something more meaningful instead of spending hours of your time in a cramped meeting room getting your shareholders up to speed. It is not only your choice but also in your power to manage the board. Get the right people into the room and set the tone by running the meeting the way you want. Founders have so much more leverage than they think, and it all starts with accepting that every board meeting is actually your meeting.
23. Thinking big and small
The biggest stretch as a founder (from my perspective on the sidelines) is to jump between thinking “big” (aka goals, big picture, story, next 3–5 years) and thinking “small” (aka day to day operations, people, the next meeting). It’s a cognitive nightmare to portray optimism and pitch an audacious goal when all you really care about is making next months payroll. Every founder finds different systems, structures, practices how to do that, the earlier you find yours, the better it is.
24. You shouldn’t raise money at all
If possible, try to push out raising money as long as possible. I have seen so many companies completely losing focus. Building something that investors wanted versus what customers wanted (after all it’s called Product-Market Fit, not Product-Investor Fit). It’s a rabbit hole that is tough to get out of, as it requires hard decisions. The expected value is higher for a founder if she owns 100 % and a company that is worth hundreds of millions, versus raising hundreds of millions only to have a shot at being a unicorn. Needless to say, many businesses will need external funding to succeed, but even in those, you can do more than you think without money. A couple of days ago someone provided a great metaphor:
“It’s like pouring jet fuel into a go kart. No wonder things go wrong.”
Some other investors have provided written accounts of their learnings, I found them a great help and inspiration:
50 brutally honest takeaways about my time in Venture Capital
Investing in Public: Non-Obvious Lessons from 100+ Angel Investments
Thanks to Andreas and Felix for providing feedback on this piece. If you have any question on any of the points, feel free to reach out.
