Quick Navigation:
- What Changes After You Raise VC?
- Comparing Viewpoints: How Your Startup Changes After Raising Venture Capital
- Transitioning into a VC-backed Business
- Managing Investor Expectations vs. Founder Vision
- Getting the Most from VC Relationships
- Things VCs Can Provide You (Beyond Capital)
- What You Can Do For Them
- When Do VC Relationships Break Down?
1. What Changes After You Raise VC?
Raising Venture Capital can provide far more value than just funding alone for your business. It can bring access to networks, the benefit of experience, a much-needed sounding board, and long-term strategic thinking.
Comparing Viewpoints: How Your Startup Changes After Raising Venture Capital
After you raise VC funding, a few things will change in your business (mostly for the better!). Often ahead of raising VC funding, founders will be apprehensive about the impacts, and will theorise that there will be lots of negatives - however it’s worth looking at how you can re-frame these negative viewpoints, and change the narrative to see the positives of VC impact
Negative Viewpoint | Positive Viewpoint |
I’ll be required to create lots of new reporting for investors, and they’ll require me to constantly update them on progress | Think of it more as an opportunity to regularly celebrate the things that are going well in your business with your VC, and for those things that aren’t, it’s an opportunity to get the VC’s perspective and ask for their input. Don’t be too proud to ask for help - that’s why they’re there. |
There’ll be new people added to my board, and there’ll be lots more governance to think about | Having VC on your board can bring experience and knowledge to the table. Perhaps they’ve been through similar circumstances with other business and can apply their experience to yours? You can still align your board governance with your company culture - if you have a lightweight and agile culture, you can apply that to the way you run board governance. Your board is a reflection of you as a business, not some strange outside influence. |
I’ll be expected to scale the business aggressively - VCs will want me to burn the cash then raise again | Raising capital is an opportunity for you to scale your business - and you shouldn’t raise capital if you don’t want to scale. You won’t be expected to play fast and loose with the money, but you will be expected to deploy the money the VCs give you into growing the business as fast as possible - which is EXCITING! |
I won’t have true freedom to make decisions any more, as VCs will have a tight control over things | Having VCs alongside you can provide an excellent sounding board for your decisions. Your VCs shouldn’t be pushing you to make decisions that you don’t agree with. Not all VCs are up in your business trying to run things - so find the right VC that backs you |
I’ll be giving away part of my business to someone else, and I’ll own a lesser proportion in my own business than I do today | They’re investing in your business because they believe in you and want to be on the journey with you. If you don’t like them, don’t take any money off them. If you like them, then you can grow the business together |
Transitioning into a VC-backed Business
Making the shift from a bootstrapped to a VC-backed business shouldn’t negatively impact your business operations - quite the opposite! You will need to be aware though, that VCs will have expectations of what they’d like to see from you, and how frequently.
Be open with your VC about clarifying their expectations around visibility:
Managing Investor Expectations vs. Founder Vision
Often we talk about the mismatch in expectation between what Investors expect from a founder, and what founders want to do themselves. This mismatch often exists because of one single reason - a lack of transparency on both sides.
Good venture investors will help push your business forward and will become invaluable in the long term; bad venture investors could spell the end of your business.
Founders will spend weeks wooing investors, often making grand statements about TAM or growth potential or the speed at which they’ll achieve their goals. They’ll push for the highest possible valuation, producing financial forecasts featuring the obligatory ‘hockey stick’ of revenue growth.
VCs will naturally get excited about the potential payback opportunity, and will represent that back to their internal investment committee. They’ll go into bat for the founder with their fund Partners, staking their reputation on why this is a good investment. Often, to get a deal over the line, VCs will even talk up the potential returns over and above what the Founder did. The VC firm will then have their own internal expectations of the business’ performance over time.
Once the deal is done, and the inevitable happens - the founders’ bombastic predictions don’t quite come to pass - the VC firm will start to ask questions and press for better results - and sometimes relationships can break down.
This is why it’s incredibly important for founders to find VCs who share an aligned view on the future - a vision based on sane growth projections, realistic TAM numbers and sensible trajectory.
Agreeing expectations as part of any deal is incredibly important, and it’s vital for founders not to inflate their numbers in the hope of getting a better deal from VCs. Your financial forecasts and projections are part of a contract between Founder and VC - you’re effectively committing to achieving those numbers, so if you’ve juiced up your projections, the only person it harms in the long run is you.
2. Getting the Most from VC Relationships
Relationships with VCs should be a 2-way street. It’s not just them giving you money alone and expecting results. It’s really important that you get the most value from your VC relationships - and often that requires you coming to the table and doing your part as well.
Things VCs Can Provide You (beyond Capital)
Portfolio Introductions | VCs encourage their portfolio companies to work together. That might mean that you’ll be able to get discounts on other portfolio companies’ products, or even work closely with them on jointly beneficial propositions. |
Networks | Sometimes Founders just need access to 3rd party experts for a short time, to help on a specific topic. VCs can help provide introductions to these 3rd parties, either for paid or unpaid advisory time. |
Recruitment | VCs are always happy to support Founders either by introducing potential new hires, or even running entire recruitment processes for founders. If asked, VCs will remain on the lookout for you when it comes to particular roles you’re trying to fill. |
Funding Introductions | For successful businesses, VCs are always thinking of the next capital raise - and will happily introduce Founders to future VC partners in their network. They may also introduce you to other institutional investors, venture debt providers or even potential future acquirers. |
Research & Insights | Many VCs will conduct their own research studies across their portfolio companies - from salary surveys to tech stack surveys - and they’ll share those with you. Seeing what your portfolio peers are doing is a great way of keeping up with the pack. |
Events | VCs occasionally runs their own portfolio events for Founders and C-Suite execs. This might be a weekend away or a day event - an opportunity to connect face-to-face with other founders, or to get access to exclusive content from 3rd parties |
Discounts & Promotions | VCs usually have relationships with SaaS providers or infrastructure providers, where they can negotiate deals on behalf of their portfolio. For startups, this can be a fantastic source of promotional prices, credits and discounts on key resources. |
What You Can Do For Them
References & Testimonials | When VCs are looking to win over prospective Founders, they’ll often ask their own portfolio founders to provide them a reference or testimonial about what it’s like to work with them. This is an opportunity for you to be honest with potential incoming founders to the portfolio, and give them a view on your relationship with the VC. |
Public Appearances | VCs will often put on conferences, events for their LP investors or other networking events, and they may ask you to come along and give an update on your business, and how it is tracking. This is a great opportunity for you to showcase your business in front of others, and to build your brand. |
Portfolio Company meetings | Often VCs will ask you whether you’d be willing to meet with other founders in their portfolio, to help them unblock a certain business problem, or provide some advice around some part of how you run your business. These meetings are a great opportunity for you to engage with other founders, and provide value to their journeys. |
Keeping them updated | It’s really important that you keep your VC in the loop on how things are tracking in the business - over and above the obligatory Board Reporting. If you can build a collegial relationship with your VC, and build a close relationship with them, you’ll find things a lot easier in the long term. |
3. When Do VC Relationships Break Down?
Sometimes, relationships between founders and VCs can become strained. This is not unusual, particularly given the expectations between the two parties. Here’s a quick run down on some of the common reasons for it, how to deal with it, as well as some things to remember:
When VCs wear two hats.
When the rest of the VC firm has different expectations of your business.
When founders and their VC disagree on direction and / or activity.
Things to remember:
- It’s your business - you don’t have to do or agree to anything you’re not comfortable with
- Your investors are your backers, your cheerleaders, the people who are on the journey with you - they’re not your boss
- No-one knows more about your business than you - its on you to help educate the others around you, if they don’t have the same level of knowledge as you
- VCs have a lot of experience, and it’s worth taking their feedback on board
- Working collaboratively with your VC is a lot more beneficial for both parties, than outright refusing to try different things
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