Five Things to Expect From Your Seed Investor
It’s been nearly 8 years since I raised my last seed round and 1 year since I led my first seed investment. In both cases, the entrepreneurs were in their twenties, the businesses had interesting traction… and the companies faced some intense challenges. As an entrepreneur I can look back and draw a bit from those experiences, and now as I wear the investor's hat I appreciate anew those challenges because I see the critical role seed investors play in backstopping founders solving big problems. What should an entrepreneur expect from their seed investor? Here’s what hits home for me, in no particular order:
- Safe conversations and tough love. I’ve never understood the posturing that occurs by founders to their investors–especially in board meetings. Summarizing events since the last board meeting or investor update would be ok if founders needed their backers to only serve as an audience…but in reality, they need to help moving big rocks! So let’s talk less and spend more time finding the right leverage to lift those rocks. This means we have to talk and identify the obstacles, which requires trust and working through our discomfort in talking about sensitive problems. You get the idea. Maybe with partners, customers and all other external stakeholders, some level of puffing is to be expected, but with your investor partner, get to a “safe” zone early and often. At the same time, your investor should not be a pushover—and you shouldn’t be looking for one. Presumably, when you raised, you did so knowing that you had blind spots and that new minds with and occasional muscle to exert would be helpful. Having someone who can call you out and give you tough love when needed can often be more valuable than the original monetary investment.
- Negotiating from your side of the table. With one of our founders, I recently sensed that he was concerned that I would be negotiating against him in his upcoming raise. This led to a good conversation about my role as a board member and my primary obligation to the company. When you raise money, and the investment is closed, expect your investor to immediately move to your side of the negotiation table, especially if they are on your board. For subsequent priced rounds led by new investors this is considerably easier than when you face flat or down rounds… but in all cases, there is a fundamental difference in how your investor should approach negotiations.
- Interruptible. VCs raise money, source deals, diligence those deals, and involve themselves to different degrees in activities that are accretive to each of those things. But all of these ultimately lead to investing in companies and supporting those companies to success. So if anything trumps, it’s the call of help from a portfolio company founder. We all set our own boundaries for when we can be interruptible, so I’m not implying that investors should break away at any time. For me, around the dinner table and when I am with my family is when I try (emphasis on try) to cut off interruptions. Any other time—early, late, and throughout the day, I am interruptible for my entrepreneurs.
- Going battle for/with you. This is where it gets fun. As VCs, we are in the business of backing energetic, visionary, driven people in pursuit of something they are convinced is the single most important things to be tackling in their lives. It’s not that hard to get out of your seat for this, right? Expect your investor partner to step up to the plate when you have the big ask. The key is to know which battles are worth fighting. Some simply don’t turn the needle. Others absolutely will. Don’t worry about splitting hairs in these—again, if you have a safe relationship with someone who communicates honestly and who has your best interests, their willingness to go to bat for you will be high and chances are they will be happy to help on even many of the smaller things.
- Investor bandwidth. The existing commitments and size of your investor team matters. No matter how good you think LeBron may be, to win the upcoming semifinals he needs to distribute the load among two guards, a center, and a power forward backing him. Without Mozgov, Thompson, Irving and Smith (or maybe even better, Dellavedova and Shumpert) my money is on the Hawks. Likewise, the breadth and depth of your investor’s team is critical for your success. Look for real industry experience (not extended time behind an investor’s desk), functional specialties (not isolated wins in the distant past) and willingness to dive in and support. Your investor team is an extension of your team–and if they are not supporting you in this way, they are just dumb money.
Is it reasonable to require all five of the above of an early-stage VC, even knowing that VCs have real limitations such as where they invest (geographic locality and sector), their investment thesis (lead / follow) and their existing commitments (# of board and investment commitments)? Absolutely, yes. Each of these is sound, and in my own experience–and over years of chatting with fellow entrepreneurs–serve as the minimum expectation.
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VP of Marketing TAB Bank | Adweek Mentee | Speaker | Professor of Marketing
9 年That's why my money is ultimately on the Warriors. :) Great read
Estacada, OR
9 年Informative article, really liked the down to earth honest tone, thank you!
The path of innovation becomes treacherous when navigated with the aid of passive investment which is more interested in its own self importance than that of the visionary who continues to create when the reason to do so no longer exists.
Mayo Clinic, Immunotherapy. Consulting Website: http//dknauer53.wix.com
9 年I have one bit of advice to add. I have personally witnessed a number of businesses doomed to failure at the earliest phases of negotiations, because of promises made by the business owner that he cannot possibly meet. Using