Investing in your investors. Advice from a former operator.
Written by Shawn Chance, Partner, OMERS Ventures
A few years ago, I made the jump from startup operator to venture capitalist. It’s been a wild, humbling and rewarding ride so far. I must confess that although the pandemic has taught me a lot and allowed me to meet with and invest in several great companies over the last 18 months, I’m very much looking forward to getting back face-to-face and adding the human element back into our business.
Having now crossed the 2 year mark, I’ve been reflecting on some of the perceptions I had about VCs when I was an operator. Some of them were spot on but many have changed. Here’s a few pieces of advice I would offer my former self:
Tip #1: Always be fundraising
I will never forget the intensity of operating early stage tech companies. Everything is on fire, it’s a perpetual battle against being under-resourced and the pace can be exhilarating -but also exhausting. I remember waking up in the middle of the night and writing down ideas or strategies that came to me in my sleep (or as I lay awake). The last thing I ever thought I should be spending any of my time on was getting to know VCs. Sure, you’re thinking “yes Shawn, now that you’re a VC, isn’t it’s awfully convenient that you think startups should want talk to VCs?”. But hear me out.
A good VC (and by extension, a strong board syndicate) can be a massive asset to any startup. Problem is that the practice of selecting VC’s is often flawed by the process. I’ve witnessed several early stage companies who think of fundraising as a type of engineering sprint -one that has a hard start and a hard stop. This of course isn’t the case for every founder but I am often surprised, specifically by first time founders who run this rigid process. Consider that the average time a Series A investor will spend with a company before exiting is over 7 years -statistically longer than the average marriage in most countries (!). Getting to know each other earlier is what’s best for a company (and yes, VCs also prefer that).
Consider getting to know VCs throughout a given year so that when the time comes to raise capital, you already know who you want on your cap table and have built those relationships. Appreciating how busy founders can be, setting an OKR at the onset of the year (eg: 4 new VC meetings per quarter) can be a simple way of working this into your operating cadence.
Tip #2: Learn about VC
If I’m honest, I spent most of my operating career focused on, well, operating. Hindsight being 20/20, I would have been more effective at fundraising, had I spent more time actually getting to understand how prospective investors thought and how their own business works. It just never occurred to me to pick up a VC-specific book (The Business of Venture Capital or Venture Capitalists at Work are both great reads) and I admittedly didn’t spend enough time on Tip #1.
If you’re cynical about VCs, then you can think of this as “know your enemy” but more optimistically, understanding what motivates various VCs so that you can speak the same language and negotiate more effectively. An easy first step is to use conversations you have with VCs to do just that. Questions like “what do you look for in companies you invest in?” or “what does collaboration look like once you’ve invested in a company?” are great ice-breakers that will help round out your VC knowledge while also helping you differentiate between funds.
Tip #3: Why VCs pass / say no
One thing I always found discouraging when fundraising was getting the “no’s”. When you run a business and put every fibre of your being into it, having a VC pass can feel like a very personal rejection. I’ve seen this emotion run hot in many CEOs I’ve had the pleasure of working with and it can be painful. I’ve since realized several reasons about why VC’s pass on deals and one that’s particularly interesting is “fit”.
Fit means a lot of things. In the obvious sense, it’s “alignment with a fund’s purpose or thesis” (ie. don’t go pitching your climatetech startup to cybersecurity investors) but it’s also often about chemistry. Going back to the earlier data point, if you’re going to spend the next 7 years working with someone, you’d better like (and hopefully respect) them. And that’s a 2-way street. Over the course of these years, your company will go through good times and bad times. There will be contentious subjects, passionately debated on evenings and weekends. You’ll celebrate big wins and breakthroughs that are pivotal for the company. And you will “disagree and commit” on polarizing issues. So, with all that ahead, think about “fit” when considering an investor and know that investors are thinking the same towards you.
On the inevitable (and necessary) “no’s”, I encourage founders to proactively solicit feedback, particularly at the earliest stages of a raise. And it goes without saying that I am always open to sharing it. Although some investors won’t be open to doing this, most should be, and you stand to learn a lot about your company as you run your process. More often than not, you should see a trend or pattern around the feedback and this can help you tweak your pitch, data room or strategy.
If you’re a first time founder raising or thinking of raising, I’m always up for a chat and would be happy to answer any question you have about VC. Get in touch!