An early stage founders guide to working with VCs — Post investment
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An early stage founders guide to working with VCs:
- Part 1: Before working with VCs.
- Part 2: Preparing your fundraising.
- Part 3: Assessment phase, hot or not?
- Part 4: From term sheet to signed deal.
- Part 5: Post investment.
Surprisingly you’ll find plenty articles covering the “raising money” process (including part 1 to part 4 of this guide) but there is less content describing the interactions you’ll have with your investors once the investment is made.
1- After the investment is made, when and how am I going to interact with my investors?
We can distinguish recurring interactions from “one-time” events.
Recurring: Board Meetings
Board meetings are meetings held regularly (quarterly in most cases) with your board members. The primary goals of these meetings are:
- To keep the board members informed of the company’s progress regarding product, revenue, marketing & sales or HR.
- To discuss short and long term plans.
- To take decisions that require the approval of the board members.
Regarding the meeting itself, the CEO is in charge of creating a presentation with up to date metrics as well as the meeting’s agenda, both of which he should share a couple of days before. The meeting generally lasts a couple of hours depending on what needs to be discussed: the founders present the deck, answer the questions and then discuss the agenda.
Running a successful board meeting is difficult and depends on:
- The quality of the presentation and the agenda you share with the board members. Sharing a poorly structured presentation with unclear metrics will make your board meeting useless. Be sure to share clear and concise board materials without trying to hide the bad news / failures. It’s an aspect on which you usually iterate during the first few boards before nailing the good format. Jean from Kima wrote an excellent post on the topic.
- The “quality” of your investors. Remember when I told you to conduct serious reference checks on investors before accepting their money? Checking with other founders how an investor behaves during board meetings is a good idea. Some investors are value-added board members and will help you tremendously, while some are toxic and think these meetings are only about themselves giving advice or judging people.
- Setting up the right expectations, from both sides. The outcomes of a board meeting depend on the expectations and limits that both the investors and you set. I urge you to read this post “The Secret to Making Board Meetings Suck Less” if you want to avoid some common traps. For example don’t discuss for hours the features suggestions made by investors if they are not in your target group of customers.
It very often happens that a founder and a VC meet regularly outside of board meetings for recurring check-ins (once a week, twice a month, whatever). If board meetings are compulsory and quite heavy to prepare, check-ins are usually less formal: you don’t need to prepare a presentation, and it consists of open discussions (by phone or email). The main goal of these sessions is to discuss more “operational” aspects (from management concerns to reviewing a sales & marketing campaign) and how to solve the “everyday life” problems of running a startup.
- Feedback sessions: if you want some feedback on your financial plan, your new homepage, your sales process or anything else, don’t hesitate to ask your investor directly.
- Recruiting: VCs can help you with recruiting key people, especially at the executive level.
- Raising your next round: when you raise your next round, you’ll interact with your current investors as they can help you create your fundraising material and make introductions to other VC firms.
- Portfolio events: most VC firms have now internal events that they organize with their portfolio companies.
- Portfolio platform / online groups: the majority of VCs have Slack groups, mailing lists or other places where you’ll get to interact with them.
2- How can I make the most out of my relationship with my investors?
- Set your expectations.
- Understand your investor’s profile & strengths.
- Be proactive & structured.
1- Set your expectations
As I explained in part 2 of this guide, you should set your expectations regarding VC value-add even before contacting them. As a consequence, at our stage, you should already have an idea of what to expect from them and what kind of support you want to have.
Of course, what you need from VCs will evolve with time. At the beginning it’ll mostly be about structuring your business: setting up proper reporting, choosing the relevant metrics, finding the right sales model, etc. Once you find your first product market fit it’ll be more about dealing with growth and recruitment challenges.
But I’m speaking about setting up your expectations because I know some founders who want as few interactions as possible with their investors while others need and want more “hands-on” support. There is no right or wrong here, but by thinking about what you need, it will be easier for you and your investors to get aligned:
- Do you need a “hands-on” type of relationship? Or you want to keep it very light?
- Are you aware of “weaknesses” in your founding team that could be filled by your investors knowledge (education) or network (hiring)?
- Do you need industry specific knowledge or specific value add that your investors offer?
2- Understand your investor’s profile & strengths
If the role of an investor might be simple, to invest in great companies and help them if needed, when working with them you quickly understand that they are all different.
Some are former entrepreneurs who had experience building companies while others had a investor career only. Some are very hands-on and like to follow closely the companies they invest in while others are more laid back. Some are great forward thinkers while some are more into execution. Some are good at product while others are better at sales and marketing. Some are arrogant (but can be value-added, it’s not correlated) while some others humble, etc.
“Profiling” your investors and being aware of their strengths and weaknesses can be a great asset as it’ll enable you to make the best out of this relationship.
Most investors are not better at executing or more intelligent than founders. The biggest advantage they have compared to most founders is that they have seen what has worked or failed in tens or hundreds of companies. And this information is valuable. As I often say to the founders I work with; I’m just here to share my opinion based on what I saw working or failing at others companies. They should take what I say as an input to make their own decision. I don’t pretend to hold the truth.
3- Be proactive and structured
Very often founders are scared to ask their investors for help. If you have some expectations (see #1) and you think that your investors can help you with that (see #2) don’t hesitate to ask. Good VCs are here to help, and it’s in their interest that you succeed.
That being said your investor is probably as busy as you, so if you need help / feedback:
- Structure well your request and give her/him all the information she/he needs up front.
- Include a clear call to action “can you review our marketing plan? What are your thoughts on our new homepage?”…
- Don’t do it at the last second and share a deadline: “can you review our marketing plan by the end of next week?”
Being well organized is key to a successful relationship with your VC. For instance, don’t expect a productive board meeting if on your side you haven’t prepared a proper board presentation with clear metrics and an actionable agenda.
3- What is it like when things go wrongs?
Good VCs will help you if your company is not doing well while bad VCs will screw you up. It’s why doing reference checks on your VC before concluding the investment is so crucial.
That being said, I know some VCs that won’t screw founders when they fail, but don’t want to spend too much of their time working on “failing projects”. My pov is that it’s fine if it’s transparent.
If before signing a term sheet you ask to investors: what will be your behaviour if we happen to fail? and they answer honestly that they don’t put as much effort into failing projects as into fast growing ones, it can still make sense to sign with them.
Some investors and founders only want to go big or go home. If both parties are aligned and have discussed that transparently beforehand, then I don’t see any problem.
The real problems are when investors are lying or if they have a toxic behaviour when a company fails.
4- What is it like when things are going well?
Many people in our industry say that the more successful a company is, the less they’ll need their VCs (beyond money), and that the opposite is also true :-)