Dear Davis: Relationship Advice for Entrepreneurs, Part III

Renowned French author Victor Hugo wrote, “Life is the flower for which love is the honey.” Love and life are richly connected and that love of life is the spark that ignites entrepreneurial fire. Our modern world is the result of countless entrepreneurs who fell in-love with an idea that they went on to create and share with the rest of the world. 

During this season of love, I hope to both spark some thoughts and inspiration around the intersection of entrepreneurship and venture capital. Just remember, the pursuit of the next idea does not trump the importance of those loved ones who support you—your honeys.

Dear Davis,

I’m new to the VC dating scene. I’ve  received a few “swipe rights” from hot VCs but I’m scare to commit to the wrong one?

Belle of the Ball

 

Belle,

Congratulations! It can be hard attracting the right kind of attention, but it sounds like you’re in a good spot.  My advice is don’t just go for the obvious. Looks can be deceiving—good hair or an impressive LP list don’t always mean a good match for everyone. Instead, look inward and see who of the eligible folks fighting for your attention are the best fit for who you are.  The best looking may not be the best fit.  

Remember that early days of the relationship are heady and full of excitement and emotion. But every relationship eventually hits rough spots. Pick a partner you share values with and who you can be open and honest with. You need someone you respect and who understands where you want to go.

Lots of folks are good at the beginning when it’s fun. Try to find a partner who can work with you through the tough times. Those partners are not necessarily the hottest ones or the ones that woo you extra hard.  

What happens if you’re interested in multiple partners? Well, funding is a place where you can practice ethical polyamory. If you’re going to try with multiple potential partners, then have open conversations with each of them and see if there is a way to make sufficient room for all. Building a strong syndicate of multiple investors early provide your startup with more potential resources.  

Good luck

 

Dear Davis,

I’ve been in what I thought was a great relationship with my investors. We always got a long, we wanted the same thing, we had a lot of great times. Then we had our last board meeting. What a shock. It turns out that maybe my investors and I are not on the same page. I feel betrayed and confused; hurt and angry.

I don’t know what to do. These feelings suck, have any advice? 

Billy Blue

 

Blue-boy,

First, I’m sorry for how you are feeling. It’s lonely hand hard being out there, especially if things don’t match what you thought they were. We’ve all been there and here are some things you can think about and some things you might practice.

Perspective:

• Things are hard and life moves fast. Sometimes you can make things better by taking a step back and intentionally slowing down. Miscommunication or disagreements happen sometimes because we haven’t had time to organize our minds, emotions, and responses. You can influence others in the conversation, but it’s rare to change who they are and what they naturally think. Working on yourself and trying to understand their motivations will help.

Practice:

• It helps me to stay on top of my mental health the best I can. Find 5-10 minutes each day or even once a week to meditate and relax. Find a quiet, clean place you enjoy. Quiet your mind by focusing on your immediate experience and nothing else. Breath deeply. If you sincerely try, I promise you’ll feel better. Finally, it’s okay if it doesn’t work the first time. Keep at it and make time and space for you.

Perspective:

• Miscommunication can also happen when there’s an epistemological asymmetry—when information is not evenly or equally shred in the room. In my experience, there’s often no one reality because it is a matter of personal perspective. If there is time, the best practice would be for each party in the disagreement to experience or garner the knowledge and perspective the other party has and then come to a mutual conclusion. That is not always possible, but always worth working toward.

Now Practice:

• Share, study, and listen actively.  Be willing to go investigate what the other perspective is and make sure you fully understand the reasons they are pushing that agenda. Also make sure you are sharing the correct and most effective data you can find to support you side of the argument. You want to be clear about your findings but kind and collaborative at the same time.
• Take their shoes. I mean, walk the proverbial mile in their shoes. Get the experience. If you can, do opt in for the same experience your counterpart is describing or work to network into someone you trust who can validate the experience that is backing up your investor’s preferred path forward. One the flipside makes sure you are helpful in meaningful introductions or the curation of an experience that would help your investors understand where you are coming from.
• The best way forward is to share and learn from each other so all parties can come to a successful conclusion or at least gain respect for their assumptions.

Best of luck, Billy. Keep your head up and don’t give up on your partners now. You chose each other in the past for a reason. Don’t forget why you did. You are an entrepreneur and have the innate gift of persuasion. Get out there and use it!

 

Dear Davis,

I’m afraid I may have a performance problem. In my last round, we got more interest than we expected, and our valuation was smoking hot. I still think we’ve got the juice but man, the expectations are now so high, I’m afraid even if we hit our stretch goals this year, we might not be able to perform (justify the last post money valuation).

Blue Pill Pete 

Pete,

Believe it or not, you’re not alone. Every GP and entrepreneur has had some performance anxiety at one point or another.  Entrepreneurship is hard and the competition is diffcult. The big thing is to not psych yourself out. Don’t fix what is not broken. You should stay on your current plan if you and your investors have weighed out the options and are ok with the planned outcomes.

That said, this is the moment you should be asking these questions and making sure everything is working properly and that there are no underlying , more serious issues. Is the strategy in place to get you and your board where you all collectively want to go. As founder, open the conversation and see what all the other perspectives are around the table.

Things you might consider:

• What are the fund dynamics of the GPs on my board?
  • Where are they in the deployment cycle of their current fund and do they have follow-on capital for my company if I am performing?
  • Do they have enough faith in the company to lead a bridge round for me if we need it? Or will they want to see conviction from new investors, and they would just rather take their pro-rata rights?
  • What info do I think my current investors need to see on a regular basis to be confident in a bridge round? Is there data sharing in place already to assists with that?
• Cash burn
  • Is everything trending to plan? If not, what can be done today to ensure we have runway to get to where we need to be to raise the next round of funding?
• Performance timing and rounds
  • What can be done to sell out of my uncertainty? Is something in the sales motion that is working better than ever that we should optimize or invest deeper in to bring plan forward?
  • What are my next round lead investor targets now looking for in the new market and can I make it there?
  • Is more conservative growth ok to extend runway or can move to profitability if I need to?
  • Is there a lead target that will jump in earlier then I originally planned to give me cash now and solidify my burn through the end 2024? Can I handle that dilution?
• Backup Off-Ramps
  • Do I have a short list of companies or strategics I could sell my technology to if I absolutely needed to?
  • Do I have or do I need to create a touch point with these targets?
• People
  • Are the people I need for the current plan and back up plans in the correct seats?
  • Are my people incentivized the way they should be at this moment, so I don’t spend unnecessary time replacing headcount in this critical moment?
  •  If there are key people to my plan that I need to keep, is there any room from the board to increase incentives to a reasonable level?

Those are just some ideas to consider. You and those around you hold the answers, you just need to uncover them. Don’t feel discouraged, take courage, and go crush!

 

Dear Davis

I have early investors that have fallen out of love with our vision. What can I do to help?

Candice, Mediation Candidate

 

Candice,

This is a bummer, and it sounds like there is more to this story. The reality is that this does happen sometimes. Investors fall out of love, partners seek different things or they grow apart. Often it’s the result of a fundamental change in their family office or fund focus. If that’s the case, it’s not you, it’s them. Try not to take this personally.

You can try to learn where they’re coming from and make sure lines of communications are clear. Don’t obsess though. No one likes stalker or a boiling rabbit in a pot. Remain kind. The exception to this rule is if you are in danger (of not executing your plan).

If it’s true that you’ve lost that lovin’ feeling, the good news is there are more fish in the sea than ever before.  In the old days, partners would stay in loveless relationships for the good of the business.  Today, folks can part ways and move on. The secondary market for private companies is thriving. Investors are not trapped in a cap table they ‘ve lost passion for. Just remember, if you do pursue this breakup, you can’t tell them where to go next. As the founder it is important to just be educational and do not advise on price or who to sell to. (That is not legal advice…talk to your own company counsel).

Possible Actions:

• Appoint a board subcommittee to inform shareholders on the secondary terms and process in the charter.
• Had the board create a redemption policy if you don’t have one and inform the investor of the process.
• Inform the investor that they can connect with other investors or sometime with university students in finance to curate a list of possible secondary funds in the US that they could contact.

Again, other than some high-level tasks there is not much you can do here other than be kind

 

Dear Davis

I met a great investor. Perfect in every way. Here’s my problem, I think they want to be way more serious that I am ready for them to be. They keep calling. They want to be involved in every detail. They’ve picked out what they’re going to wear when we open on NASDAQ. I saw them in a board meeting doodling our logo in the margins of their Moleskin and looking out the window with a dreamy look in their eyes. Don’t get me wrong, I want to be in this relationship, it’s just a little crazy intense. How can I manage this without hurting their feelings or worse, destroying this relationship?

Slow Roll Steve

Dear Steve,

It is easy for me to say this, but first let’s give your investor the benefit of the doubt. Maybe they are just super excited about you and what your awesome team is building. They love being a part of the company so much that they just end up thinking about it a lot which can come off as obsessive and weird.

The best advice I have is to lean into their excitement strategically. Use them for targeted marketing of your vision. Investors like this can be invaluable in customer or strategic partnership calls, future investor recruitment, and some carefully curated all-hands meetings. Other than trying to keep them at arm’s length, try to channel their energy into projects that you want. Also, it’s always appropriate to set working boundaries and expectations around company updates, and make sure they understand them.

All my best. It could be worse. 

 

To all the readers, this time of year is all about relationships (and chocolate). Building and financing innovation can be immensely stressful. Let’s remember to do it with kindness and love. Never forget we do the difficult because we are all passionate about the future. It is an undeniable truth that to do our best we need each other.

Until next time, Happy Valentine’s Day!

 

TechBuzz welcomes back guest author Davis Warnock for our Valentine Day "Dear Davis Entrepreneur-VC Relationship Advise Series." Part II can be found here, and Part I here. A seasoned early-stage investor, Davis was one of the founders and is currently a GP at Prelude, Mercato Partners' venture capital fund. Alongside his partners he invests a newly raised fund into General Technology, SaaS, and Cyber Security companies. Davis can be reached at davis@mercatopartners.com