- Lead investors are champions for your business and invested in your success. Don't hesitate to access their expertise, resources and network to help propel your business forward.
- While there's no single formula for building strong investor relationships, successful Series A founders recommend tactics like frequent communication, open discussions (including healthy debate), transparency, and even showing vulnerability.
- Your lead investor doesn’t have all the answers either; feel free to push back when something doesn’t seem right.
As Jim Franklin, then the CEO of SendGrid, was getting ready to participate in the Hawaii Ironman, he had some concerns about swimming in the ocean. He was no stranger to triathlons, but Hawaii’s reputation for shark-infested waters gave him some pause. He mentioned his hesitancy to his lead investor, Byron Deeter, a partner at venture capital firm Bessemer Venture Partners, who was hosting a gathering with CEOs of portfolio companies.
“Byron immediately decided to join me for a swim,” Franklin says. “The time in Hawaii,” he adds, “was a great way to get to know him.”
For a startup CEO, having a lead investor means not swimming alone. When the relationship is working, it’s a bit like having “a new best friend,” as Franklin puts it. The lead investor sets the terms of a startup’s financing round and writes the biggest check. They’re as eager as anyone to see the business succeed. They’ll want to know how things are going and how they can help.
But it’s often up to the entrepreneur to reap the full benefits of this foundational relationship — experience, resources and a network that can help a startup in myriad ways. Often, it’s simply a matter of speaking up and asking. “The squeaky wheel gets the grease,” says Mar Hershenson, founding managing partner at Pear VC.
Drawing from the experiences of other startup CEOs, here are four tips to building strong relationships with investors.
1. It’s okay to be vulnerable
Bringing bad news to your lead investor can feel scary. But it’s essential. They might have a solution, or at least give you the space to talk about it and work with you to get past it. Pear’s Hershenson makes this clear at the start of the relationship: “Building a startup is really hard,” Hershenson tells founders in her portfolio. “I’ve seen every disaster happen, and I want to be the first to hear the bad news. I give founders permission to be honest.”
Similarly, a good lead investor won’t expect you to have all the answers. Showing uncertainty or admitting vulnerability can often be to your advantage. It’s likely your investor has helped other companies navigate similar challenges or ponder the same questions you are. Don’t be afraid to lean on your investor as a sounding board, or to serve as a reality check. They are literally invested in your success, and do not want to see you flounder.
2. Pushback — in both directions — can be key to a fruitful relationship
Conversely, no matter how experienced, a lead investor doesn’t have all the answers either, and no one knows an early-stage business better than its founder or CEO. “Something to watch for is the ‘playbook’,” says Franklin. “VCs are expert pattern-matchers and it is tempting for them to recommend to you what they have seen work elsewhere.” That may not always be the right approach for your business. So pushing back is healthy — and expected.
When SendGrid was eyeing different paths for growth, Franklin and Deeter were occasionally at odds about what was right for the business: Should the business grow organically? Which customer base should be the primary target? “These were some of the hard business questions that we struggled with,” says Franklin. “But in the context of the broader relationship, you knew that even if you disagreed on the business issue, the other person was well-intentioned.”
Investors, like all people, bring their own biases and inclinations. It can be easy to mistake investor bias that for lack of confidence in you and your team.
3. Lean on their network
Aside from the big checks they write, lead investors almost always bring other resources to help grow the business. It’s not uncommon, for example, for an investor to recommend talent from one portfolio company to another. Investors also have powerful networks that founders should work to leverage, as they can help to find partners, customers, advisers and others who can help propel the business forward.
After delivery platform Route closed its Series A round, it’s CEO at the time, Evan Walker, looked for ways to scale quickly. The company was signing on retailers at a rapid clip, but on-boarding individual businesses took a lot of time and overhead. Route’s lead investor, Craft Ventures, introduced the company to a distribution partner that helped the company quickly bring on hundreds and soon thousands more retail customers.
“We would have had to spend a couple of years trying to network into these deals,” says Walker. Instead, Craft helped Route “bypass a lot of the corporate sales process to get straight to the top of the food chain” and ink the deal within months.
4. Trust and transparency are paramount
Of course, like in any relationship, there isn’t a single model that works best for everyone. Ultimately, the onus is on every founder to find a dynamic, cadence and depth of rapport with their lead investor that works best for them and does the most to advance the goals of the business.
Our team at Silicon Valley Bank has deep experience in working with companies from seed to Series A and beyond to embed financial services. Contact us today to learn more about opportunities for your business.
