The Moments that Define Investor and Founder Relationships

In almost every single investment I’ve ever made, I can think of a singular moment in my relationship with a founder that, no matter what came before or what might come after, defined our relationship. Often times, it came in a very vulnerable and down moment for the founder—perhaps they just lost out on a big opportunity, had someone from the team leave, or they’re running low on capital before sales have come around. It happens to everyone regardless of how well the company is doing—because no path to success is a straight line.

While it might be a low point for a VC’s expected return on investment, it might demand of an investor a high point in their generosity and empathy—because a founder is going to remember who was there for them with confidence and motivation, and who either abandoned them or tried to take advantage of the situation.

Not only that, but the venture community is extremely small when it comes to investor reputations. Founders are tremendous advocates for investors who have their backs—but if you put a founder through the ringer unnecessarily, everyone in their circle is going to know about it, if for nothing else because they’ll need to talk through it with others in real time for guidance.

The key to having difficult conversations with founders is setting expectations. The worst thing you can do as an investor is to go back on indications of support or to blindside a founder that you’re changing the strategy around your professional relationship. If you’ve lost the confidence needed to follow on in a deal, that needs to be signaled right away. If you’ve decided not to invest in the first place, you need to say so as soon as you know it so you don’t string a founder along. If you’ve left your firm or have other deals that require more time, you can’t just become a ghost or check out on a founder after negotiating all sorts of legal incentives for the founder to be motivated for the long term, which makes someone assume you’ll be doing the same.

Failure stories are going to be told just as often as success stories—and investors need to make sure that even when the decisions are tough, they come early, consistently, and with transparency, or they’ll be one of the villains in an oft-repeated tale.

The Willingness to Learn and the Pressure to Be Confident

Being a founder means showing confidence. It’s nearly impossible to fundraise, hire, or lead without it—but at the same time, founders don’t know everything.

There are many things they’re going to be doing for the first time that are ridiculous to expect them to know how to do right off the bat. Just because you start a company doesn’t necessarily mean you’re automatically a good manager, a good recruiter, or good at PR. Yet, you’re under constant pressure to instill confidence in your team and your investors that you’re the right person for the job. Raising your hand to say that you’re struggling with something isn’t easy, but it’s a crucial job requirement.

The most successful founders excel at one thing more than anything else—learning. They ask a lot of questions and listen, putting into place best practices and systems that don’t depend on them just knowing everything outright. For example, instead of thinking that they have to be a great manager, knowing at all times how each person in the organization is doing, they put systems of evaluation in place that are both quantitative and qualitative so that everyone can be on the same page about job performance from a more objective point of view.

Systems take the pressure off individuals for lots of different aspects of the company. They allow everyone to know what their part is and how they’re going to be measured. They also help switch the conversation from “This person is good or bad at X” to “This is how we’d like to do things here and here’s how you’re performing compared to that.”

If a founder has issues with confidence, admitting they need to work on things can feel like opening old wounds of the worst things you think about yourself. You’re already convinced you’re not good enough, and so being asked to examine how you can improve can feel like a painful, all too well-trodden path or a slippery slope to feeling like you’re not good at anything. This is where it’s important to check yourself and be confident about what you bring to the table, while being objective and constructive about where you need some advice, a system, or training to help you perform better. No founder is perfect, and if you find yourself funded, employing people, and having already launched—you can’t be as inadequate as your worst insecurities tell you that you are.

Trust me, you’re not that good at faking it.

You’re an early stage founder with lots of potential and you’ll become a great executive one day if you’re willing to learn.

Do you have to bankrupt yourself to start a company? How all in is all in?

I started a company back in late 2007. We raised $550k in seed funding and, despite a lot of hard work, things didn’t work out. It turned out I wasn’t such a great product manager, the technical things we were doing were about two years too early—about to be made orders of magnitude easier by a lot of cloud and big data tools, and, oh, yeah, Lehman went under when I was pitching VCs for money in 2008.

Because we hadn’t raised much money, me and my co-founder didn’t take much in salary—but as things started to look like they weren’t going to work out, we took less and less. I was optimistic about my financial situation because I was in a relationship with someone graduating law school who I thought I was going to move in with. I was just bridging to the economics of scale of couplehood—at least, that was the plan until the relationship ended. That’s when things really went off the rails and my debt started to pile up.

The hardest thing about that situation was that there wasn’t anyone to talk to about it. Personal finance is a thing that no one likes to talk about. It comes with a lot of shame and embarrassment—that somehow if I was more successful or more savvy I wouldn’t be in this situation. I definitely should have saved up more—but I was also embarrassed that I wasn’t more successful at my startup.

What I did do was to create some boundaries for myself. I wasn’t going to sell my apartment and I wasn’t going to sell my car, nor was I going to touch my 401k. I was done when my credit card maxed out and my personal savings were both gone and that was it. When I joined First Round Capital in October of 2009, I limped in with about $31,000 in credit card debt and no immediate savings.

The reality, though, is that the salary I made isn’t realistic for everyone. If I had kids, I wouldn’t have been able to make it as long—but if I had kids, I probably would have raised more capital and just taken more dilution to cover that.

One of my investors made us feel like taking any salary whatsoever wasn’t enough sacrifice—and that they wanted to see us forgo salary until we launched a product. In hindsight, we probably shouldn’t have taken on that investor—because anyone that things that starting a company should be an exercise in putting thumbscrews to founders to create the most painful exercise possible to get the best results just didn’t share our values. Maybe that was their experience, or how they were best motivated, but that’s not how we worked best and you want to make sure every aligns on how to get the best effort from the team.

Founders need to feel empowered to build companies on their terms—and they should seek to find investors who align with their values. Your salary, what you pay employees, work hours, etc. are all very personal decisions for team members and there is no single formula for success.

Generally speaking, I back founders that I trust to understand that any money they take is money the company doesn’t have, while at the same time being self aware enough to know how they do their best work. If you cut your salary to $35k and you can’t afford to pay your rent or feed your kids, that’s not going to get me and my investors the best return on our money. It’s only going to exacerbate a long, slow, stressful death for the company because you were too stressed to make the right decisions for the long term value of the business.

If you’re in NYC and you’re interested in having a transparent and honest conversation about founder finances, check out the Financial Gym and their event on this difficult topic this Thursday. They’re a financial wellness company that I invested in built around eliminating the fear and shame around money and staffed with trainers who are experts in having honest and non-judgemental conversations.

How to Break into a Senior Business Position at a Growing Startup

You’ve got a great resume. You went to top schools, trained at a prestigious bank/consulting firm/etc, and you’ve succeeded in the corporate world doing some important and impactful stuff. Now you want to take that skillset over to the startup world and you’ve got a lot to offer. You can bring some serious business chops to a company that is going up and to the right but needs to take it to the next level.

Unfortunately, there are a few hurdles in your way:

1) It’s very difficult from the outside to identify which companies are for real—and also which are at the stage you’re looking for, which is out of the “might not be around next year” stage, but not already a unicorn.

2) You’re not a specialist—so a company at that stage would be hard pressed to hire you as a head of sales or marketing, for example, because there are plenty of people out there who already have that specific skill set with startup leadership experience behind it.

3) You’re at a point in your life and career where you’re not about to chance things on a company that might not be around in six months for zero salary.

These are all reasonable points—but the difficulty is that you’re part of a marketplace of talent where you’re in the mix with lots of other people with, at first glance, similar backgrounds. They’re willing to take a lot more risk for earlier stage positions, getting into companies before anyone has a chance to see if they’re going to make it, leaving very few opportunities open by the time they get to a stage you’re more comfortable with.

Still, these kinds of positions do open up occasionally—opportunities to lead new business units as General Managers, Heads of Business Development, COO’s, etc. The key is to be “nearby” to the opening when it comes up—to somehow be a known and trusted quantity, not just a resume. As investors, we do make these introductions to companies, but we do it with people that we can vouch for.

Accomplishing that means understanding how the key stakeholders, like founders and investors, spend their time. These folks are super busy and have learned to have a really high bar for 1:1 meetings. They’re not just grabbing coffee with any random former McKinsey consultant who wants to “get into the startup world”. If they did, they could fill their schedule with just that—that’s how many such requests they get.

You’ve got to bring something valuable—like talent, money, or visibility.

If you start making introductions to founders based on openings they have, that’s going to get you in the door. I mean, what’s the point of having a Harvard MBA if you can’t connect someone to the very best professionals. Same goes for business opportunities. If your classmates are running various groups within the kinds of companies these people want to work with, you can be an invaluable resource.

Why stop at classmates? If you know that someone from your school or extended network is a lot more senior to you and is seriously influential in a company that lots of startups would want to work with—why not host a meal or event for them to showcase what they’re working on.

Who wouldn’t accept an invite to “A networking breakfast where 7 midstage startups will be able to give short demos to the CEO/COO/Head of Business Development/etc for Big Interesting Company X that has huge reach/distribution/userbase, etc.” Maybe make it sector focused and bring in a bunch of such contacts. You could ask a bunch of VCs who would be relevant for those companies—and only ask that you bring Series A/B and beyond companies to the mix.

Now you’re offering value ahead of making asks for your own career—and doing it in a way that doesn’t require me to have to go for coffee (or in my case, tea) ahead of time with someone I feel like I’ve met a bunch of times before resume-wise.

Money works this way, too—and it’s a way to get in with VCs, especially smaller funds. Smaller funds are always looking for limited partners and co-investors in their deals—so starting an angel group or just being willing to make such introductions in your network goes a long way. You could run the same kind of group suggested above on a regular basis as a way to network with investors.

The point is, you’re aiming to build trust and show that you’re willing to offer value before asking for it. That’s what a founder and investors want to see with a senior businessperson before seriously considering them for positions. They want to know if this person can leverage their network in interesting and smart ways to create opportunities for the company.

Media is a great opportunity for companies as well. For those that want to also create visibility for themselves in the process as a smart and connected executive, how about creating a podcast or video interview series about “Hires that took the company to the next level” or “The next Unicorn”—i.e. the types of companies you want to be talking to. The secret to asking people to interviews is that they largely don’t care what kind of following you have—because they can always link to the interview in front of their following. So, worse comes to worse you’re just an outsourced segment producer for their content—and eventually with enough links, you will have that following. That’s basically the story of the 20 Minute VC—a random 20ish year old just started asking VCs to be on a podcast and, yada yada yada, a couple of years later he’s out with his own fund. The best part about this format is that you don’t actually need to be an expert—you just need to be able to ask good questions.

What this does for you is that it accomplishes the filtering mechanism as well. Instead of asking people “Who should I network with” which people really don’t have time to think about, you’re asking “Who would be interested in this opportunity I have—it’s only open to companies with at least X number of employees, funding, stage, etc. and we’re really trying to bring impressive up and comers to the table.”

Of course, you don’t have to take any of this advice. You could just e-mail me and other investors with your resume attached, request my time to help you (a one way street), and ask which companies are likely to be near riskless, high upside opportunities for you to get lots of employee options in.

Good luck with all that.

How to Rock a Short "Office Hours" Meeting

Whether you’re going through an accelerator or you’re at some kind of speed dating event, short “office hours” meetings present both an opportunity and a problem for investors. It’s a great way to get out from behind the e-mail and actually meet people face to face.

However, it’s a terrible way to get your whole pitch in. There’s just not enough time to convince someone to invest and have a productive back and forth.

So what do you do?

First off, change the goal. The goal is to get another meeting, not to get a check. That starts with the basics. Be professional and polite. A quick thank you for having them make the time is appreciated, especially because they’re likely doing this for a few hours straight.

It’s exhausting—so be excited and upbeat about what you’re doing.

Start off by sharing a quick plan for the 20 minutes:

“Here’s what I’d like to do… First I’d like to establish whether or not we’re the kind of company you would consider and then I’d like to outline the X number of things I think you’d need to believe in order to want to take another meeting with us.”

Describe the nature of your company in terms of stage, sector, etc.

“We’re an enterprise SaaS company solving X problem using Y solution. We’re pre-revenue and we have a team currently building a beta product that will be launched in four weeks. Is this a stage and sector that is a fit with your fund?”

If the person says no, you could ask them for suggestions on who you should talk to, or ask them their best piece of fundraising advice, or frankly, just give them their time back. You could say, “I’m going to e-mail you a description of what we do and a deck—should you meet up with any relevant investors, please feel free to pass this on.”

If they say yes, distill your whole pitch down to a few short things that an investor would need to believe to want to know more.

“For you to be interested, you’d have to believe the following:

That people are willing to pay to protect their privacy online.

That we have a team capable of user acquisition at scale based on our track record.

That the market size justifies venture financing.”

If they take an issue with any of your points, just share with them why you believe you’re right—but don’t try to debate it. You don’t have the time for that.

If you have time, share something interesting about how you do what you do—which, you can of course weave into the answers above—but 20 minutes goes really quickly. With some time left on the clock, ask them if you believe this warrants a deeper dive in another meeting. If they say no, just thank them for their time and move on.