As active seed investors, we at Dundee VC spend a great deal of time thinking about how to manage our portfolio CEOs and founders. While we never want to be operating our portfolio businesses in the day-to-day, we do strongly feel that active and eager venture investors can significantly impact the trajectory of an early-stage company. Like co-founders or initial key hires, the best investors can be instrumental in the success of the business. The worst investors can derail, delay or permanently damage the shot at a positive outcome. CEOs and founders can and should manage venture investors to support the goal of an ultimately successful investment.
active and eager venture investors can significantly impact the trajectory of an early-stage company
Here is some insight into how CEOs can manage venture investors, based on real-world, boots-on-the-ground experience:
Across 45 investments and nearly 100 co-founders and CEOs, Dundee VC has found that the best way to manage venture investor firms is to build the true value within a portfolio. Recognize the tasks where investors’ time, knowledge and networks have the most leverage for management. A few places where we spend most of our time with CEOs and founders include:
That, along with offering empathy during bad times and ego-checking during good times, are instrumental for a business.
Throughout working with our seed-stage startups, we have found that the best operators manage venture investors as well as they manage their entire operation. This includes the employees, the culture, the board and the company as a whole. A supportive investor base is energizing to be a part of: helpful, aligned and engaged. They recognize their own deficiencies and limitations. They are also wholly supportive of the business and management while continually pushing the company to fulfill its potential. When managed poorly, or left to their own devices, the worse investor bases can be full of discord and discontentment. At their worst, they can act disengaged, regressive, defensive and self-interested.
the best operators manage their investor base as well as they manage their entire operation
The contrast is stark. The way you manage is critical to the business’ success, which is why investors must encourage founders, from the very first day, to keep all of their investors in the loop. [Editor’s Note: Check out webinars related to “Advising the Start-Up 2018”.]
We suggest founders base management-investor relationships on trust and communication. Here are three key factors that help startup CEOs manage their investors:
1. Align on Vision: Some of the flimsiest relationships happen when investors and management have different visions for the company. CEOs who can manage investors adeptly ensure that they clearly articulate the company vision from the very first meeting. These CEOs also ensure they take on investors who are aligned with that vision. While investors can often provide helpful strategic guidance, they shouldn’t be driving the long-term company vision and roadmap. The goal should be founder- and CEO-driven. Vision can stray, evolve and be refined, so this isn’t a one-time exercise. In fact, founders should start every board meeting by re-stating the company vision, so the strategic discussions that follow start from the same foundation.
Note: The meaning of “vision” is purposefully broad here. The most important vision to get aligned on is the overarching mission and strategy of the company: What are you building and why? But over time, this will also extend to the details. Do you optimize for margins or growth? Inside or outside sales? Are you perfecting a product or releasing a minimum viable product (MVP)? In all cases, alignment starts with open dialog.
2. Be Proactive: Investors are similar to employees. You will get more benefit and fewer missteps with continuous, proactive monitoring, instead of managing after the fallout. By the time an investor or employee expresses displeasure, those negative feelings have been simmering for months. As a company grows and the employee and investor bases get broader and more diversified, being proactive becomes more important.
To be successful, companies must communicate regularly to their investors. Keep in touch both on a consistent timeframe and as issues arise. Additionally, the very best CEOs work hard to develop personal and professional relationships outside of scheduled board meetings or apart from investor calls with their major investors. Especially with seed-stage investments, companies need the long-term support of their investors over multiple financing rounds.
[Editor’s Note: You might also be interested in webinars on the subject of “PE VC and Hedge Funds De-Mystified”.]
Achieving this is twofold:
3. What’s Really Going On? Every relationship is built on a foundation of trust, and this is no different. CEOs who allow investors to see what is really happening in the business — the good, but more importantly the bad — quickly build trust with the investor base. Experienced investors know that something is always broken in every startup. Being vulnerable and empathetic creates deep relationships. That’s just how humans are hard-wired.
Dundee VC managing partner Mark Hasebroock loves asking the question of our founders: “What keeps you up at night?” We’ve been on the other side of the table and recognize that something else is screwed up every single day. If founders and CEOs are forthcoming about mistakes, concerns and threats to the business, you’ll more often than not find that a supportive investor base will be ready to step up. From there, the trust builds. Start with the small things — a bad hire here or a missed sales close there — and by the time you arrive at the critical threats, you’ll have a trusting, engaged investor base willing to help.
[Editor’s Note: Want more on the basics? Listen to webinars on “Personal Finance and Investing Fundamentals”.]
Note: This can start before you even have the investors you want on board. We encourage our founders seeking Series A and B capital to share company updates with potential investors showcasing the good, the bad and the ugly. Overcoming adversity is an everyday state for even the best startups. If you can continually show potential investors your ability to be open about what’s happening, it goes a long way as they look to evaluate an investment.
Like all relationships, the ones between founders/CEOs and investors take time, energy and thought to cultivate and manage. By focusing on these three core pillars of managing investors, your investors can become an asset rather than an anchor to you and your company.
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Greg Beaufait joined Dundee VC in 2013 and now leads the fund's investment efforts in Minneapolis. Greg started out as an intern at Dundee before graduating from the Heider College of Business at Creighton University with degrees in Finance and Economics. He primarily focuses on deal sourcing, investments, and portfolio company management.
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