When you have a brilliant idea, and all you need is financing, it can be frustrating speaking with prospective venture capitalists. Although you and the VCs will have similar goals — to grow a successful and lasting company — the motivations behind those goals will be starkly different.
What’s important to remember is that both sides of the VC-founder relationship can bring tremendous value to the table, but both sides have their own motivation.
Tips for VC-Founder Partnerships
The contrast between the goals and motivations of startup founders and venture capitalists can be so severe. At best, VCs and founders work together like a match made in heaven. At worst, they chase each other around the boardroom table as if they are in a boxing ring, scratching and biting with different viewpoints, or ending up in court.
It’s essential to find the common ground — the balance point — where healthy tension gives birth to creative solutions to the problems at hand. Although this process can be challenging at times, by selecting the right VCs to work with and maintaining the right attitude, startup founders can overcome VC relationship issue that presents itself from the start.
It is important before you go the route of Venture Funding to ask yourself though if you and your business is ready and willing to take on a partner with a board seat and with the ambition to grow the business to a unicorn at all costs. You have to ask yourself if you are truly aligned with the requirements a Venture investment will put on you and your team.
Here are some tips for startup founders:
1. Remember That Both Sides Are Challenged to Find the Right Match
It’s not easy for startup founders to find the right match — nor is it easy for VC’s to find the right startup. On the one hand, VCs don’t want to put their money into a company that won’t fulfill their investment goals. On the other hand, founders don’t want VCs who will destroy the vision they have for their companies.
This requires honest and straightforward sharing of your numbers and vision. Do not window dress to look better or appeal to an investor. You are setting the foundation for a long-term relationship that often lasts 5 – 10 years. You will not only lose your credibility by not delivering on your promise but more important you start out by playing catch up. Neither one helps you or the investor.
2. Understand the Different Kinds of Startups and VCs
Startup founders looking for a capital investment usually fall into two categories: (1) the founders of rapidly growing startups who will have tons of investors trying to get involved, but will only select the venture capitalists considered to be at the top of their game; and, (2) founders of slowly growing startups that are willing to take money from almost anyone who wants to get involved.
VCs will also fall into two categories: (1) the venture capitalists with stellar track records of success and massive financial coffers; and, (2) smaller-scale, less renowned venture capitalists that have the skills and experience — and sufficient capital — but still have to realize their returns and proof out their investment theories.
Of course, there is a range in between, but realize who you are and who you can attract to save yourself time during the stressful fundraising process, which is going to take away valuable time spend on your operations, customers, and sales.
3. Realize That VCs and Founders Have Different Goals
Most capital providers have the same goal — to use their investment capital and business acumen to multiply their investment within five to ten years. To achieve this goal, they look for companies with massive growth potential. Furthermore, they look for startup CEOs and management team with the right skills, products and human resources required to dominate their chosen space. Out of the thousands of potential investments they review, most Partners at a Venture Capital firm only invest in three to five startups a year.
The goals of founders when working with VCs are somewhat different. They want to keep control of their company and their ideas — while getting access to capital, the added momentum, and market recognition that comes with a sizable investment from a reputable firm.
This creates a bit of a difference, which seems nuanced, but has a huge impact: Growth vs Building – as the goal.
4. Cultivate Your VC-Founder Relationships
The more energy and time that VCs and startup founders invest into understanding each other’s goals, the better they can decide whether or not they’re a good match, and the better they can work together to mutually achieve one another’s goals. This process requires honesty, patience, and diligence on the part of both parties; however, when you are willing to understand the motivation of your counterpart, you might just be able to move mountains together.
You always have the ability to say no. No to an investment, no to a different vision and no to a growth direction that does not fit your own desires and goals for your company. One way of staying in control of this process is to make decisions from strength and not weakness. If you are standing with your back to the wall with no cash flow or no cash in the bank to sustain another year in business, you have created a situation that does not work in your favor.
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