Like most of you, yesterday I read a blog post from Andy Dunn “Dear Dumb VC” (http://bit.ly/18t23Qs) and one of my board members, Mark Suster, “98% of VCs Aren’t Dumb” (http://bit.ly/13Xr8hV). Their core disagreement concerned the prevalence of dumb VCs. I think the discussion was informative but I actually missed what is possibly the most important point regarding VCs: each entrepreneur gets the VCs (and VC relationships) they deserve. In other words, entrepreneurs have lots of of ways of influencing the quality of your VC relationships.
Most entrepreneurs have significant control over who invests in their companies and, more importantly, the quality of their VC relationships after the investment. Here are five ways an entrepreneur can maximize the value they get from their VCs:
Get To Know VCs Before You Get In Bed With Them. I’m constantly amazed at how frequently entrepreneurs treat fundraising like a trip to the money supermarket. They go to the VCs when they need them and try to make the fundraising process as short as possible. Since I joined DataSift, we’ve only taken money from investors we’d known for at least 6-12 months. This meant we had a significant personal history and context before we had to choose a term sheet in a competitive situation. In our case, we wanted ‘lean forward” smart VCs who had strong opinions and demonstrated their command of our business and knowledge of our sector. After a year, we knew our VCs had the knowledge and passion we wanted. In short, we were looking for "Jerry McGuires": Investors that were genuinely passionate about what we were doing and our team and willing to go the extra mile.
You Can Dramatically Impact How Smart Your VCs Are About Your Company & Therefore The Quality of Their Advice. We invest heavily in educating our investors about our business, At DataSift, our board meets approximately every 6 weeks for 2 to 5 hours. Our decks are between 60-90 pages. This work is not all done for them. We use lots of slides from other meetings (Strategic Planning Meetings, Weekly 1:1, etc) so the actual amount of time we spend prepping for a meeting isn’t cumbersome. We find however that the ROI on the effort we make to bring together this information for our investors is great. We encourage our VCs to interact extensively with members of our team at all levels. Recently one of our VCs spent a bunch of time during an office visit walking the floor and asking great questions. Our VCs have passwords to our Salesforce account and key Dropbox folders. If your VC wants to know how Marketing and Sales are going, then invite them in for a 2 hour work session. We frequently send them articles and reports about the industry.
You Should Suck Your VCs Dry (Of Value). We look at our VCs as an extension of our team. Since we launched the company, they have provided tons of value because we have been pretty aggressive about asking for it. This includes everything from sourcing executive hires, reviewing pricing, connecting us with big customers and partners and more. Be specific about what you want. Ask early and often for value and you will get it.
Understanding Fund Dynamics Will Help Your VC Relationships. I’m constantly struck by how much the fund dynamics influences a VC’s perspectives. Is your VC at the beginning or end of a fund? Is your VC a senior person at the firm on the investment committee? Is your VC about to start fundraising? Has he just had a Massive Exit or failure? The more you understand about what’s going on in your VC’s worlds, the more deeply you will understand what motivates them.
Keep Your VCs Current. We do lots of different types of news monitoring at DataSift so we usually hear pretty quickly about any new developments in our industry. When something is big enough (like Salesforce acquiring Buddy Media) we often send a quick 3-4 sentence email to the board with our thoughts. I think this helps ensure that we’re on top of what’s going on.
I think picking VCs is as important as picking a founder or significant other. I’m hoping some of the tips above can help you find your “Jerry McGuires”.
The many victories the DataSift team has celebrated over the last year (big product launches, signing large new customers, etc) were often even sweeter because our VCs were celebrating along with us. In many cases, they were at least partly responsible for the points we had put up on the scoreboard.
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