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How can you manage relationships with multiple co-investors?

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Co-investing is a common practice in venture capital, where multiple investors join forces to fund a startup. It can bring many benefits, such as diversifying risks, accessing more deals, and leveraging different expertise. However, it can also pose some challenges, such as aligning interests, communicating effectively, and managing expectations. In this article, you will learn how to manage relationships with multiple co-investors and avoid potential pitfalls.

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Amit Mehra, CFA

Partner at BORDΞRLΞSS Capital

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Paresh Sheth

Finance & ESG expert. Board Adviser European Impact Fund & Director CASI New York The worlds largest CSR &…

1 Why co-invest?

Co-investing can help you achieve your investment goals faster and more efficiently. By co-investing, you can share the due diligence process, reduce the transaction costs, and increase your exposure to high-potential startups. You can also benefit from the network, knowledge, and reputation of your co-investors, who can add value to the portfolio companies and facilitate follow-on funding. Co-investing can also help you build trust and rapport with other investors, which can lead to more opportunities and referrals in the future.

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Amit Mehra, CFA

Partner at BORDΞRLΞSS Capital
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Co-investing is a strategic approach that leverages collective expertise and resources. It's important to note that while it offers numerous benefits, such as shared risk and access to larger deals, it requires meticulous relationship management. Effective communication and clear agreement on exit strategies are crucial. Additionally, as the venture landscape evolves with increasing competition for high-quality deals, co-investing can be a differentiator, enabling investors to access unique opportunities and enhance deal flow through strong investor networks.

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Paresh Sheth

Finance & ESG expert. Board Adviser European Impact Fund & Director CASI New York The worlds largest CSR & Sustainability company* (Ex Principal Officer AIF-2 GIFT City,Ex CEO Investment bank, broking,& family office)
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When I was advising a few family offices I preferred co-investments because we did not have the capability to engage with promoters at multiple levels right from due Diligence to monitoring on a monthly basis. It proves to the best strategy because it was symbiotic. Now as an investor I prefer co-investing because some of the most lucrative deals happen to go to my friends in large VCs and the only way I can participate is co-investments.

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Brian Zwerner

President of W3 Studio. VC at Beyond The Game Network
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One of my favorite parts of the VC experience is working with other investors. I spent 20 years in investment banking, and it was a cutthroat biz. No one wanted to partner, and it was hard to trust others. VC is totally different. Deals get done collaboratively at most early stages. It’s a joy to be in a market like this.

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Ravi Gama

CEO at RSA Partners | Board Member | Investor Relations
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Co-investing presents a plethora of benefits that can enhance your investment strategy and strengthen your relationships with fellow investors. Firstly, it allows you to leverage collective expertise and resources, thereby mitigating risks and increasing the likelihood of success. Collaborating with other investors also fosters a sense of camaraderie and teamwork, which can lead to smoother decision-making processes and better alignment of interests. Moreover, co-investing provides opportunities for knowledge sharing and learning from each other's experiences. This exchange of insights and perspectives can broaden your investment horizon and help you identify new opportunities or navigate challenges more effectively.

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Johannis Hatt
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Returns for the asset class of early stage investments are driven by the power law. The more investments you make the higher the probability of outstanding returns. If you co-invest you can increase your dealflow and therefore more efficiently invest in a larger number if companies which in return should boost your returns.

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2 How to choose your co-investors?

Choosing your co-investors is a critical decision that can affect the success of your investment and the relationship with the founders. You should look for co-investors who share your vision, values, and strategy, and who have complementary skills, experience, and connections. You should also consider the reputation, track record, and financial capacity of your co-investors, as well as their willingness to collaborate and support the startup. You should avoid co-investors who have conflicting interests, hidden agendas, or unrealistic expectations.

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Paresh Sheth

Finance & ESG expert. Board Adviser European Impact Fund & Director CASI New York The worlds largest CSR & Sustainability company* (Ex Principal Officer AIF-2 GIFT City,Ex CEO Investment bank, broking,& family office)
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In layman terms the way to select co-investors is “Richer -Stronger - Smarter”. They need stronger processes, access to better deals and capability to monitor investments frequently. This way I have peace of mind. Of course there are other ways to opt for co-investors but that’s on a case to case basis.

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3 How to structure the deal?

Structuring the deal is another important aspect of co-investing that can influence the outcome and the dynamics of the relationship. You should agree on the terms and conditions of the deal, such as the valuation, the ownership, the board representation, the voting rights, the exit strategy, and the fees. You should also define the roles and responsibilities of each co-investor, such as who will lead the deal, who will conduct the due diligence, who will negotiate with the founders, and who will provide mentorship and guidance to the startup.

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Paresh Sheth

Finance & ESG expert. Board Adviser European Impact Fund & Director CASI New York The worlds largest CSR & Sustainability company* (Ex Principal Officer AIF-2 GIFT City,Ex CEO Investment bank, broking,& family office)
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Structuring is not really an issue. Most investors / family offices / VCs / PEs are aware of their own strengths and weaknesses. It’s never about ego : it’s always about making a good return and ensuring governance. Nothing that can not be figured out between smart investors. If you are stuck at this stage : My advise stick to your strengths and respect the other persons strengths. That’s a win win situation.

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4 How to communicate with your co-investors?

Communication is essential for maintaining a healthy and productive relationship with your co-investors. You should communicate regularly, transparently, and respectfully with your co-investors, and keep them informed of the progress and performance of the startup. You should also solicit feedback, input, and advice from your co-investors, and acknowledge their contributions and achievements. You should avoid miscommunication, misunderstanding, and misinformation that can lead to confusion, conflict, and resentment.

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Daniel R.

Growth, Product, VC, Web3, Tokenization & AI
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As far as I am concerned, the key ?? is stablishing clear communication ?? channels, fostering trust and alignment, and proactively addressing and proactively scaling potential conflicts, investors can ensure a collaborative and productive working relationship ??. ?? Needless to say that effective communication is a must when it comes to success in co-investor relationships: Regular updates, designated communication platforms, and proactive reporting help keep them informed and engaged. ?? Establishing shared goals and expectations from the outset, boosting respectful dialogue, and maintaining transparency and honesty build trust.

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5 How to resolve conflicts with your co-investors?

Conflicts are inevitable in any relationship, especially when there are multiple stakeholders involved. You should anticipate and prevent potential conflicts with your co-investors by setting clear expectations, establishing trust, and respecting boundaries. You should also address and resolve any conflicts that arise promptly, constructively, and diplomatically, and seek a win-win solution that preserves the relationship and the interest of the startup. You should avoid escalating, ignoring, or avoiding conflicts that can damage the relationship and the investment.

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6 How to end the relationship with your co-investors?

Ending the relationship with your co-investors is a natural and inevitable part of the investment cycle. You should end the relationship with your co-investors gracefully, professionally, and amicably, and celebrate the achievements and learnings of the co-investment. You should also maintain contact and network with your co-investors, and express gratitude and appreciation for their partnership and support. You should avoid burning bridges, leaving loose ends, or creating bad blood with your co-investors.

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Paresh Sheth

Finance & ESG expert. Board Adviser European Impact Fund & Director CASI New York The worlds largest CSR & Sustainability company* (Ex Principal Officer AIF-2 GIFT City,Ex CEO Investment bank, broking,& family office)
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This is a tough one. Especially if you are selling out / cashing out midway and the co-investor is not. The valuation issue will be huge because it’s a fluid situation. If the investment is let’s say a construction project. Residential. So we depend on final sales for the SPV to end. But if you want to leave mid way the valuation will be an issue. Ideally You will need to give a longer notice period. Else you get cents on a dollar.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you manage relationships with multiple co-investors?

1

2

3

4

5

6

7

1 Why co-invest?

2 How to choose your co-investors?

3 How to structure the deal?

4 How to communicate with your co-investors?

5 How to resolve conflicts with your co-investors?

6 How to end the relationship with your co-investors?

7 Here’s what else to consider

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How can you manage relationships with multiple co-investors?

1

2

3

4

5

6

7

1 Why co-invest?

2 How to choose your co-investors?

3 How to structure the deal?

4 How to communicate with your co-investors?

5 How to resolve conflicts with your co-investors?

6 How to end the relationship with your co-investors?

7 Here’s what else to consider

Venture Capital

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