How to Talk to Your Venture Capitalist
Are founders and VCs from different planets?
In the title of his seminal work on relationships, the psychotherapist John Gray observed that Men Are From Mars, Women Are From Venus. In more terrestrial terms, Gray’s thesis was that men and women have markedly different ways of giving and receiving love, responding to stressors, and “keeping score.” While Gray’s apothegm reads as somewhat passé in our present century, in light of shifting gender norms and the increasing likelihood of both men and women taking up residence on the Red Planet, his central insight remains salient for at least one form of coupledom: namely, the investor-investee relationship.
In the United States, the average marriage lasts around eight years, and entrepreneurs and investors can expect to tie the knot for roughly that long. Sometimes these are marriages of convenience (or even arranged marriages, as when a GP shares a deal with a friend at another firm). Other times, term sheets are signed out of genuine affinity, mutual admiration, and a sense of alignment. You want to build a great company, we want you to build a great company – what’s there to split hairs about?
Yet once the honeymoon period elapses, founders and investors tend to run into a fairly consistent set of miscommunications. This is something of an open secret in an industry that is famously opaque, network-driven, and suffused with near-manic levels of optimism. Scaling startups is hard, and founders and VC’s approach inevitable growing pains with different perspectives, expectations, and anxieties. Board meetings can be breeding grounds for disagreements, as Elizabeth Zalman and Jerry Neumann observe in their tell-all book Founder vs Investor. And while VCs approach board meetings with an eye on growth markers and operational snags, founders tend to focus on the more immediate task of not getting fired.
VCs make investments based in large part on the merits of individual founders, but their investments are in said founders’ companies first and foremost. VCs care deeply about their founders and about returning the fund to their limited partners. The investor’s eye view therefore tends to shift more quickly towards scaling, whereas founders understandably remain focused on their original mission, the problems that first kept them up at night or lit fires in their bellies. These differing perspectives are in both cases understandable, and they inevitably produce some amount of tension – yet tension is a healthy thing, as Gray’s contemporary Esther Parel would aver. The key is to manage that tension, rather than letting it fester into resentment.
With that in mind, I wanted to share some best practices founders might keep in mind to promote transparency:
Be upfront about how much help you want (and how frequently you want it). Don’t be afraid to discuss the areas where you’re less experienced and/or foresee needing extra assistance. While many VCs make a habit of near-daily touch points, others are more hands off. It’s important to consider your preferences ahead of time.
Be diligent about reference checks. Due diligence is just as important from the founder’s perspective as from the VCs. If possible, try to speak with founders from portfolio companies that succeeded and those that went through hard times, in order to learn how a given VC responds to times of adversity or crisis.
Don’t bite your lip if you have strategic differences of opinion; odds are, your VC invested in you because of your headstrong tendencies, not in spite of them. Healthy tension is a good thing in any partnership, but it’s open communication that engenders trust and confidence.
Consider independent board members. When differences of opinion persist, a strong independent board member who is a fellow operator can play the role of Switzerland. This is also great board governance, helping avoid conflicts of interest between shareholder and board roles.
Don’t just wait for feedback – actively solicit it. This proactive approach quite literally produces a positive feedback loop, showing your investors that you are receptive to feedback (both critical and laudatory).
Prioritize in-person interaction, and don’t only meet investors (or other advisors) over Zoom. Most investor-founder relationships benefit from IRL meetings and coffee dates, and VCs feel much more comfortable investing in people they’ve met face to face.
Did we miss anything important? Don’t hesitate to comment and share your own thoughts around best practices and common pitfalls, from either the VC or founder perspective.