Founder-friendly investors — misconceptions and truths
I just read this great blog post by Ben Marcus. I am proud to be a part of his (and Greg’s) journey at AirMap. In his blog Ben gives his take as a founder on what it means to be a founder-friendly investor, and I am so glad he took the time to put his thoughts down. Founders blog more frequently about their bad experiences with VCs, and less often about what good relationships can be like.
There is so much misconception around this topic, largely for two reasons:
- It became fashionable over the last few years to become passive admirers of founders you back as an investor. And what I call a ‘lack of taking ownership and playing a lead partner role’ became synonymous with being founder-friendly. VCs are themselves to blame for letting this happen.
- A bunch of startup advisors tried to over-emphasize their importance and role by telling startups to not form Boards, or keep Board members at an arms’ length away from decision-making, or by guiding entrepreneurs to more ‘passive’ investors who were rapidly placing bets and did not have the time to roll up their sleeves and get to work.
I have run into this situation a few times where some entrepreneurs get bad advice on the role of Board members even before they walk into their first Board meeting— and part of my job becomes helping them realize they need to unlearn that. Board members are formal partners to entrepreneurs and they can be a huge resource for entrepreneurs— not using them effectively would be one of the more silly mistakes they can make as a founder. Most GPs at VC firms are experienced folks that are also tremendously networked: they were either operators/founders themselves, or have seen dozens of companies execute and have a wealth of lessons to bring to bear. There is no reason for a VC-backed entrepreneur to ‘wing it’ on any front when such resource is easily available.
Disagreeing with an entrepreneur on any decision is never an easy conversation. It is, after all, their company and nobody wants to hijack that. Nobody wants to be the jerk in the room who is seen as ‘nagging’ when others are simply happy to nod their heads and move along. I don’t want to be that guy as well…but I believe entrepreneurs bring me on as a partner when they realize the help and resources that I bring as a member of the Lux Capital team can amplify their chances of success. I would hate to be the person who is in a Board room only because s/he wrote a check. Ugh!
When its time to roll up the sleeves and do the work, to point out mistakes entrepreneur might be making, and to guide them to better decisions, I must play my part faithfully. When all is said and done, those part-time advisors, consultants, and arm-chair observers won’t be there to back entrepreneurs up and to stand behind the company in both good and tough times. But a good VC would.
I remember the conversation referenced below clearly. When AirMap did its seed financing last year, convertible notes were fashionable…but I proposed to Ben a priced round with a formal Board. And Ben did what I thought was the right thing for the company. He chose to play the long game with me…he trusted me, and I hope it will pay off for him.
Founders and investors get married when an investment is made. Would you want your spouse to leave you alone? Only when you’re about to get divorced. Bad relationship. Great investors know what sort of interactions their founders like, they know when to spend time together, they know when to give space, but they certainly don’t leave their companies alone. When I’m about to make a big mistake, I want my investors to tell me to think twice. Moreover, investors (especially lead investors) should be an extension of the team. Our investors have proven helpful in business development, recruiting, fundraising, and in many other ways. Early on, some advisors recommended that we raise a convertible note instead of equity for our seed financing, and that we not form a board until Series A. I’m glad that we chose to do a priced seed round and to form a board with Bilal at that time. His focus and attention on AirMap have proven invaluable.