The Game of Venture Marriage

VCs love to bring dating and marriage anecdotes into the venture world. Well where I come from we get married fast, you may or may not see your partner or may meet them once or twice then you decide to go for it! So far there are also very low divorce rates in the country…lowest in the world!

Jokes aside the argument of getting to know your investor is hot right now. Investors think founders are just rushing into a most important decision of choosing their partner without getting to know them. While I actually agree with that argument I’d like to make a counter argument from the founders perspective which I can see as well.

Gut-based decision:

Founders get a lot of advice from different people. It can be overwhelming. Also, there is no one right way to do business. I would say founders have to make many decisions fast and sometimes it’s hard to differentiate which ones they should really take the time to evaluate or which ones should they made a quick judgment call. There is a lot to do here let’s check off fundraising with what I know best.

Power Dynamics in Fundraising:

Founders often feel fundraising and courting is time consuming. I mean anyone who has dated before getting married know how long that takes (and it doesn’t always work out!) In fundraising the power dynamics are screwed up too. Unless the company is doing really well dating with an investor mean one way information flow. It also means playing this hot and cold game over and over again with different investors. One min they could be interested and another minute they stop answering emails. Who wants to deal with that?

Go back to building:

Founders feel that fundraising can mean time away from selling, hiring and building a business. They think end of the day investors judge you on metrics anyway so why waste time. (I might disagree here but that’s what founders think.) So when money comes in front of them and they can use it to hire right away and not do the dating dance it’s very tempting to give that up.

This conversation is very important when founders are doing equity rounds and picking board members. As an investor, I have seen bad board member behavior and I know where the investors are coming from. I have seen companies that should be thriving but bad board members made the companies take different turn. So I do recommend take time to do your homework on your new potential board member.

Lastly, if this is not an equity round with board members founders feel the risks are too low there. Again, I see why founders shouldn’t think that way I can see why they go ahead quick with their rounds on SAFEs without often thinking about investor mix. Here are some reasons I hear why that happens -

Optimistic thinking:

Founders often feel very optimistic early on before they have started. (As they should!) So they don’t get why they need an investor to help them down the road. It’s easy for founders to think — How can investor add value anyway? Plus who knows what help I might need if any…

Knock it out of the park:

Founders think they will knock it out of the park by their next round and it will be easy to pick a next round investor based on their own terms. Or they can work with an internal investor.

It’s hard to say no:

Again in the early days if you get any traction with investors who are trying to give you money it’s flattering. It seems like you are onto something good and the investors that ask you to take it slow or aren’t shoving money down your pockets might not have strong conviction in you. So it’s hard to say no to investors who make you feel so good. Often while investors think founders should take their time deciding they want to preemptively offer term sheets before the founders have a real chance to fundraise so it’s counter to what they say! I don’t blame the founders. It’s hard to say no!

Winning vs. Helping:

Founders forget winning a deal vs. helping a company are two separate things. Just because the VC could get conviction to put money in you very fast will they also be equally helpful to you? Will they be a good sounding board when you call them regardless of their check size?

Check size vs. Fund size:

This is something to really understand as a founder but they don’t. Often they get lost with the brand name validation they are getting and loose some context. The time you will get from your investor is going to be based on how big of a check size they write in your company compared to their fund size. So if a $500m-$1B fund is willing to write $1m check in your after 2 meetings then it can be flattering but they are buying optionality for the next round and may not be as helpful. And you might actually not get a term sheet from them for the next round if things don’t really align well for you and you will have to explain to other VCs why a large investor in your pre-seed/seed round isn’t just leading your Series A round. While a smaller newer fund (like Array.vc!) might really want to be super helpful as they have real skin in the game and need you to succeed!

There you have it. Figure out if a long engagement or a quick marriage is right for your company and all the pros and cons that come with it!