Founder vs. Investor: The Most Unique Relationship in Capital Markets

Chase Roberts
Vertex Ventures US
Published in
4 min readSep 13, 2023

The relationship between a venture capitalist (VC) and a founder is one of the most unique relationships in capital markets. Most institutional investors will never see the faces of those working diligently to produce the returns they’re seeking.

Stock market investors might only ever hear the voices of CEOs and CFOs during earnings calls and be more familiar with the spreadsheets that help analyze valuations, company fundamentals, and market trends.

A real estate investor will gaze at a property’s physical attributes and financials long before the eyes of the managers operating it.

The bond investor knows the trader’s voice promoting the asset’s yield, credit risk, and maturity but wouldn’t recognize that of the issuer.

On the other hand, the relationship between VCs and founders is like a marriage. Signing a term sheet signals a commitment to a 5–10+ year relationship where “divorce” is unlikely, requiring more lawyers than mutual dissent. Both parties expect failure but aspire for success, and they commit to the long, volatile journey of building something from nothing. This relationship is characterized by late-night phone calls, daily Slack messages, and quarterly pageants — ahem — board meetings. For the founder, their investor might be the only boss they hire in their lifetime. Investors must forecast a founder’s operational and strategic capabilities from seemingly few interactions.

Liz Zalman and Jerry Neumann know this unique relationship first-hand. Liz is a repeat founder, and Jerry has made several hundred investments. They co-wrote a book, Founder vs Investor: The Honest Truth About Venture Capital from Startup to IPO, to reveal the inner workings of this relationship and render advice to founders and investors alike. The book offers a candid take on the oscillating incentives, potential failure modes, and tactics for happy, productive marriages. I interviewed Liz and Jerry about the book, which you can enjoy here.

As a VC with firsthand experience with the capital structure they seek to demystify, I recommend the book to those who might find themselves in one of these relationships. I’ll offer three takeaways, yet these are a sample of the book’s insights.

Founders, diligence prospective VCs. This is a hiring activity. Since you’re hiring a board member, it’s closer to a one-way door decision than your employee hires. So, understand who you’re hiring. Perhaps this is self-serving, but too often, I see founders treat fundraising as a transaction. They’ll pack investor meetings back-to-back, entertain a few diligence requests, and spend more time contemplating term sheets than those who wrote them. Instead, treat fundraising like dating — get to know the strengths of a prospective investor:

  • Are they experts in sales and marketing?
  • Will they serve as insightful management and leadership coaches?
  • Can they help me decipher two promising executive candidates?
  • Do they recognize common failure modes during company scaling?
  • Have they seen my industry or buyer first-hand?
  • Can I trust them?

Just as you seek to find product-market fit, you should also strive for founder-investor fit. Diligence starts with introspection. Consider your gaps and where you desire to grow as a founder. Your investor won’t operate your business for you, but they can be a trusted advisor. Look to founders and investors with whom your prospective VCs have worked previously as sources for this information.

Be candid. Founders, your investor relies primarily on you for information about what’s happening with your startup. I empathize with founders who oversell the current state. They reasonably want their investors to commend their efforts and maintain faith they can go the distance as CEOs. An imprecise view of the business means the advice you hoped to get from your investor is rendered null. On the other hand, candor and adequate context sets a foundation for productive collaboration. Investors, your founders can’t act on input they don’t receive. Don’t assume founders know they’re succeeding because the business is thriving, nor is the opposite true when the conditions are flipped. Similarly, don’t oversell success or understate failure.

Investors’ advice is conditional. Investors, every startup is unique, so blunt input is precisely that. Despite your level of engagement, you will never match founders’ depth of context about the business — not because you don’t care, but because you aren’t immersed in the business 24/7/365. Recognize as much when providing input about a topic. Founders, provide adequate context and reveal the conditions in which your investor’s advice applies. For example, a suggestion to “hire three BDRs for every one AE” only applies given the specific characteristics of your sales cycle. Ask questions to reveal those characteristics and the necessary conditions for implementing that advice. Qualify the recommendation based on the assumptions your investor might be making and the context you provided them. I remind the founders I work with that my input is a data point and not an ultimatum since they are the ones who are ultimately accountable.

These represent a subset of the book’s many lessons. If you haven’t already, purchase a copy here! Your marriage will be better as a result.

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