Dear Founder #2


Dear Founder:

You have invested some of your own money (and much “sweat equity”) into the company you founded, taken some seed or angel money as the initial funding, and are making progress with some initial trials.  There is significant interest in your product and you have accumulated a project pipeline.  Your company looks like it may start ramping up from the several US$10k monthly run-rate to US$50k or US$100k monthly run-rate.  As you embark to scale this growth (at three-digit percentage [i.e. 100%+] for at least 2 to 3 more years from today, and consistent growth of sales month after month), you are looking around for VC funding to help you with this ramp-up.

It’s probably time to look at going to “institutional” money.

But not everyone is suited to a VC or PE type of investment.  What we’d say is it does put pressure on you – though most of it is good.

And it’s also important that you find the right strategy and the right partners.


  1. Good VC investors experienced in funding young technology companies have a good sense of the scale-up journey and how an “insider outsider” can support it: they help the companies (“add value”) not by being encouraging and positive all the time, or by introducing people all the time, or by asking questions all the time.  They do do these things – but most importantly they help by asking probing questions, offering one or two strategic comments, challenging you to achieve more or to think about things in a new and / or different way.  Broadly speaking, they are there to generally challenge intelligently and to provide support, share experience and help solve scale-up problems as and when needed.  They are also there to then help bring on the right set of next-round investors, knowing when to do so and making sure the company knows what milestones they need to achieve before going to the market again (otherwise it can be a waste of time).  There is a huge difference between helping build something or co-creating something (in a supporting role), and trading / doing a deal / putting together a financing.
  1. Good VCs know where their strengths are.  They will know where they can help and where they can’t.  They will find the right person to help on things they can’t.  They will also defer to the founders on things they think should be deferred to the founders.  On certain things, they will also know to push back strongly – they have seen a lot of failures or mistakes and sometimes that experience really count.  As a founder, what you need to learn is what your VC is good at.  You need to learn how to use your VC – there are areas they can be very useful and areas where they can be much less useful.  It is quite individual-driven.
  1. Good VCs are straight.  Being the founder-CEO is a lonely and demanding job.  Having an objective and honest “sounding board” – who doesn’t shy away from tough conversations if needed – can add a lot of value: it can help you clarify your thoughts which can sometimes mean seeing the need to make changes or adjustments in a more timely manner.
  1. Good VCs tend to have a combination of scale-up experience, whether entrepreneurial or operational, and / or young company investment experience, either in that one partner or in their team.  (We like working with co-investors with that background too – it’s usually that combination of experience that makes their advice useful during the phase of development we are talking about.)
  1. Good VCs do diligence and take the time to properly understand a company before they invest.  Not only does it mean their commitment is more serious (it takes time and effort and $ to do diligence), oftentimes the diligence process throws up interesting analyses, insights and ideas that are useful for you and your team.  On top of that, having spent time understanding team dynamics, for example, means that the investor will be less likely to have knee-jerk (and the wrong) reactions when the inevitable setbacks or problems or disappointments arise in that growth journey.

This, at least, represents the standard we hold ourselves to.

But not all VCs are like that – and so be discerning.  It’s also not that difficult to discern.  Good VCs are almost without exception aware of not wasting your time – and you can usually tell that in your 1st or 2nd interactions with them.  They will be professional and they will tell you what they can do, and what they can’t do.

First advice, therefore: don’t take money from people whom you don’t feel you can have a “dialogue” about the company with and every time learn something, for the next at least 3 to 5 years.

Second advice: don’t focus too much on maximizing valuation.  Focus on finding the right partner.  Focus on what you need – how much $ is needed to get you to the next milestone.  Obviously, this is not to say to find the lowest valuation.  Find a reasonable and balanced valuation: the higher the valuation the higher the pressure on you and your team, and the lower the room for errors or exploration.  Most important to align incentives.

Not everyone make it though.  Some entrepreneurs don’t like that VCs make them lose “control”.  Some don’t like being asked probing questions.  In the eyes of some VCs, these entrepreneurs are not “backable”.

The final but perhaps the most important point: you are in the business of beating the odds.  In trying to grow a company from nothing, you are entering a competitive “game” whereby most companies and most teams don’t make it.  There are many, many reasons for not making it.  Some are external and somewhat less-than-controllable – e.g. markets changed, consumer tastes shifted, negative “spillover effects” from a peer company getting into trouble, new competitors (or incumbents) enter the market – and some are unfortunate – e.g. an incumbent suing you to avoid being disrupted.   But some are more controllable – failing to find the right partners, not being focused on making the customer happy (as amazon’s founder always says), not prioritizing the need to invest in and attract the best team.

You are, in other words, in the percentages game.  Maximise your odds by bringing on good funding partners because unlike your employees or even your customers, it’s difficult to sack them if it doesn’t work out.

Pin on PinterestEmail this to someoneShare on FacebookTweet about this on TwitterShare on LinkedIn

Leave a Reply