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Investor relationships are partnerships (Oversubscribed Weekly #18)

March 19, 2019 by

Mike here. Let’s talk about the fact that the founder <> investor relationship is a mutually beneficial partnership on a level playing field.

A healthy relationship with an investor who invests in your company involves aligned interests, with both your startup and the investor providing value to one-another.

That’s why I really struggle with the following tweet:

This tweet made me laugh at first, but then cringe. Natalie is referring to the fact that VCs were headed to San Francisco yesterday for YC Demo day. This image that Natalie paints is the same old trope of founders chasing after VCs, hoping to give them an elevator pitch in desperation that they’ll fund their company.

I’ve talked to a lot of founders who’ve raised money, and I haven’t talked to a single founder who closed an investor by desperately chasing them. 

As a founder, you should consider yourself on a level playing field with potential investors. You have precious equity in your unique startup that you’re selling, and they have their money and value-adding services that they’re selling.

You are looking for a partner, not a savior. No more “I need a lead investor” or “I’m looking for investors.” The truth is that money is a commodity, and you instead should be looking for a mutually beneficial partnership. Approaching fundraising with that thoughtfulness and confidence will lead to better results, and ultimately better partners. 

On the other side of the spectrum from the “founders are beggars” imagery, there’s another toxic narrative:

First let me say, more support for founders who are building businesses that aren’t ideal for the VC path is a great thing, and I’m always down for knocking VCs down a peg. However, this implication that VCs are bad or part of a “ponzi scheme” is absurd.

The truth is, VCs share a lot more in common with founders than you may expect. Just like founders are scrapping to make their company work, VCs are too! VCs need to demonstrate that their business models are working enough to raise a second or third fund. Their business models are designed so that they need to be able to return their entire fund with a single investment (usually ~15-20x+ return). It’s not that they think less founders who can’t generate 20x returns, it just literally doesn’t make sense for their business model.

Whether you’re talking to an accelerator, angel investor, VC investor, or any other kind of investor, the single most important thing you can do is understand their business model and the types of outcomes they’re looking for. To criticize VCs for trying to make their business models work is silly.

I was once the founder complaining that VCs wouldn’t invest in me because they thought my business could be a $100M business but not a $1B business. I didn’t take the time to understand those investors’ business models, and expecting them to form a partnership with me without understanding how I helped them achieve the goals of their business model was immature.

After all, how could I expect them to want to be my investment partner, if I didn’t take the time to understand what it meant to be their entrepreneur partner?

This is a partnership – make sure you act like it when you approach fundraising.