Once you have a VC on the hook, you’ll want to negotiate the best deal in terms of valuation and deal terms (for more details about negotiating the best terms, check out my previous post: 9 Ways to Negotiate Your Best VC Terms). Once you’ve reached an agreement, you’re done…or not!
Far from the end, receiving funding is actually just the beginning of a whole new stage for you and for your company —a stage full of financial statements, board meetings with VCs and more. A lot is about to change…
The early days will set the tone so take the following steps to build a positive working relationship with your investors:
1. Define “success.” If you’re doing milestone funding, presumably the VC is on board with your proposed milestones, but this is worth confirming. Make clear what milestones you are shooting for with this funding round and get VC buy-in. If necessary, break down your “to-do” list of performance objectives into what you are definitely planning on attacking, and what is on your “maybe” list—if there is enough time and money. In this way you can manage your VC’s expectations and avoid issues further down the road.
Agreeing to terms of “success” is also useful in that it is a bridge to a Series B. If you have achieved your milestones and need more capital, your existing VC might agree to insider-led financing, saving you the hassle of trying to find new investors for Series B.
2. Create a structure. Create a structure for the relationship that keeps the VC informed and involved at a level that you both are comfortable with and that ensures that you are maximizing their benefit for the success of the company. For example, how often should you report out to the VC? Do they want monthly GAAP financial statements? You should review these types of questions with your VC and agree to the terms.
3. Establish what you expect from your investors. The VC/entrepreneur relationship can sometimes feel like a one-way street, but it shouldn’t. If the VC believes in you enough to invest in your company, then what you have is a partnership. In any partnership, there are expectations and ground rules from both parties. Do you expect timely feedback? Active networking assistance? Do you have particular rules for board meetings? Clearly you don’t want to go too far with your rules, but establishing some fair and clear rules of engagement makes sense for both you and your VC.
4. Be transparent. As with any relationship, honesty with your VC is the best policy. If you’re encountering some bumps in the road, there’s no sense in trying to hide these from your VC—the truth will out, at some point. You want to create a trusting relationship with your VC and you do this through transparency and honesty.
Depending on your VC’s level of involvement with your company, you may wish to seek their counsel in finding solutions to the problems you encounter. More importantly, when you run into a problem, you need to be prepared to propose workable solutions. In other words, don’t just tell the VC that you’re facing some challenges; show them that you are successfully managing the situation and taking steps to resolve the problems you are facing. This breeds confidence.
Ultimately your relationship with your VC is money-based. They’ve given you capital and are expecting a certain percentage of return on their investment. Making money for your VC is the best way to ensure a great working relationship. Unfortunately, no startup is a sure thing so, while you certainly want to give your VC the kind of returns they are looking for, there are never any guarantees. What you can control are the non-money aspects of your relationship. If you can create conditions under which the VC trusts and likes you—and understands what you are doing—then you’re in a good position to get further rounds or future VC money for a new startup that may be somewhere down the road for you.
How are you working to build a good relationship with your investors?