With billions of VC dollars currently invested in startups across the globe, it’s encouraging to see recent reports suggesting that the vast majority of VC-backed startups look to be capable of surviving the ongoing pandemic. But while VCs have rightly stepped up their efforts to support portfolio companies through the crisis, it’s important that investors don’t overstep their remit and, in doing so, damage the value-add relationships they’ve nurtured with their founders.
VC/startup partnerships should be driven by early conviction and relationship-building, rather than determined simply by potential addressable market forecasts or five-year growth predictions. Jamie Ward, CEO, and co-founder of flexible gym membership platform Hussle, points out that, “Once an entrepreneur understands investors are not some higher power and, in the vast majority of cases, are essentially entrepreneurs themselves, then they can build a productive relationship that is based on honesty, openness, and collaboration. Founders and investors need to take the time to get to know another as people, without being guarded when talking about the business challenges.”
After forming these partnerships, VCs need to demonstrate proactive management of their investments and remain in continuous dialogue with founders. They need to take a solutions-focused approach, working with portfolio companies to address any issues and shortcomings instead of working “against” the company with a stick. And they need to deploy all of their experience, best-practice, portfolio learnings, and understanding of macro trends, to guide, manage, and support each business on its journey. This approach is becoming known as ‘activist venture investment’
However, there is a fine line between being supportive versus interference. No doubt the COVID-19 crisis has exasperated many founders whose investors have suddenly become a constant and vocal presence within their day-to-day operational lives.
A good VC invests in good founders, and good founders also have good intuitions that they must be allowed to follow. Similarly, founders do not like being dictated to. VCs must know their place, respect each entrepreneurs’ skill-set and domain knowledge, and recognize where it’s necessary and appropriate to contribute.
Overstepping the mark will damage the trust and mutual understanding between investor and founder, to the detriment of the long-term partnership. As investors, we are entitled to ask questions of our founders. But usually, the most helpful two questions we can ask are: where can we assist you beyond capital, and where do you need help?