How to Keep the Peace with Your Venture Capitalist

There are obvious reasons why it’s important for entrepreneurs to have good relationships with their venture capitalist (VC). First off, funding is necessary for the success of any startup. If there is no money, there will be no business. Secondly, VC partners bring unique sets of knowledge that entrepreneurs should tap into.

Both the VC and entrepreneur have skills to bring to the table, but their objectives might not always align. The fate of a startup hangs in the balance of the relationship between an entrepreneur and VC. There are certain steps that must be taken into account, from picking the right VC to broadening the relationship, in order to keep the peace.

4 signs you should say ‘no’ to a Venture Capitalist

In this economy, many entrepreneurs are happy to get funding from anywhere. But, according to serial entrepreneur Rajat Bhargava and Brad Feld, the manager of venture capital firm Foundry Group, this is the wrong attitude to have. The two have collaborated on seven start-ups over the past 18 years and have developed a strong entrepreneur/VC relationship.

“The mistake a lot of entrepreneurs make is that they’re too tame because they don’t want to scare off an investor. But the best investors love questions. They want to do more than just write you a check,” Feld says.

Every VC in the world will say he or she wants to be your partner and advisor, not just a source of funds. But, from many entrepreneurial experiences, it is known that having a VC can do more harm than good at times. So, how can you tell if a VC is wrong for your business? Here are 4 warning signs from Bhargava and Feld:

1. The VC isn’t fascinated with your product.


2. He (or she)’s just not that into you.


3. You can’t be completely honest.


4. The VC doesn’t treat you as an equal.

If any of these warning signs sound familiar, you should probably look for funding elsewhere. Having a VC can be critical to the success of a business, but it can also cause detrimental damage if the relationship is not stable.

If these warning signs do not apply to the relationship you have with your VC, then perhaps your focus needs to be on improving the relationship.

Set the tone for your relationship

Why do entrepreneurs take advice from their VC? The obvious answer to this question is that the VC gave them a lot of money, but that answer doesn’t fully capture the problem. VCs try to impress prospects with other values they bring to the table, and one of those is ‘advice.’

“This sets the tone for their relationship, which is founded on the assumption that the VC will advise the entrepreneur,” says start-up mentor Ajeet Khurana. He goes on to explain 3 reasons why most VCs are not in a position to advice entrepreneurs:

1. The objectives of the VC and the entrepreneur might not always be aligned.


2. The VC is concerned with financial returns while the entrepreneur might be looking at much more.


3. When things go wrong, the entrepreneur and the VC might react differently.

What is the solution? Khurana advises that entrepreneurs “should listen politely and just do what they want to anyway!” Others might say to reach a middle ground where communication and honesty meet. Going behind your VC’s back will quickly turn a friend into an enemy. While you are expected to put your body-and-soul into your business, your VC is all about making money. Just remember VCs are not entrepreneurs – their job is to protect the interest of their investment, not run the company.

Broaden your Venture Capitalist relationships

Given the importance that investors can play at critical moments in your company, entrepreneur Mark Suster suggests that you broaden your VC relationships. “Most entrepreneurs don’t manage their VC relationships as well as they could. My observation is that many entrepreneurs have a strong relationship with the partner at the VC who invested in his or her company.”

Suster suggests that you take a moment to understand that VCs are partnerships that make decisions as groups. Yes, the partner who invested in your company is the person who best knows the details of your business, but it would be well worth your while to broaden your relationships with your VC firm as a whole.

So, how do you go about broadening this relationship? Spend time befriending the associates of your VC firm. There are few associate jobs that exist in venture capital, so you can be assured that these people are not only super bright and accomplished, but also very career oriented and possess many skills that would be useful to you. Don’t write off associates too easily. Many sources out there say that meeting with associates can be a waste because partners generally control investment decisions, but associates can be very influential.

In summary, VC partnerships are like any organization. Your job is to have as broad of political support as you possibly can to get help, and introductions and positive decisions when you need them.

via Business 2 Community http://www.business2community.com/small-business/keep-peace-venture-capitalist-0726612?utm_source=rss&utm_medium=rss&utm_campaign=keep-peace-venture-capitalist