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The term “founder-friendly” is ubiquitous in the world of entrepreneurial capital – so much so that the phrase no longer seems meaningful. Entrepreneurs have become reasonably skeptical of such empty claims, and the cautionary tales of “pro” VCs underestimate the founders.
Enough with smoke and mirrors. A successful relationship between VCs and founders can only be built on mutual trust and transparency. Having been working in the venture-capital and asset-management industries for almost two decades, I have found that it is best to place people at the center of all investment activity to achieve long-term goals for both investors and portfolio companies. To nurture these mutually beneficial relationships, you need perseverance on both sides of the partnership for a broad, people-first cause.
At Beyond Capital Ventures, my venture-capital fund invests in start-up companies in India and Africa, we focus on conscious leaders who are committed to their company’s mission. We see every interaction with the company – from the moment we start working properly, when we make them partial owners of our funds – as an opportunity to build a personal and professional relationship.
Trust and collaboration are two of the most essential elements of the perseverance process for a founder-friendly reason. Trust arises from cooperation, and cooperation results in transparency and responsiveness. An entrepreneur should know first and foremost that we are considering the best interests of all parties involved – companies, shareholders, employees and founders – and should be prepared to have simple discussions about not only opportunities but also business risks and mitigation. In other words, for investments to be genuinely “founder friendly”, both parties need to provide honesty, clarity and conviction throughout the relationship.
We know that raising capital is not an easy process. Some investors forget that startups are weak and in overdrive mode – and now, multiple investors will ask to stay away from their core operations. Founder-friendly perseverance can acknowledge bandwidth limitations and also that founders probably have blind spots. Investors should share those observations and help the company make pre- and post-investments to realize its maximum potential and also respect the time and resources of their founders and startup staff. Stop playing games. If you have capital, tell the company how committed you think you are and your concerns, time and reality.
Related: What VCs look for in a startup investment
There are three ways VCs can support founders
1. Give the founders a part of your work
Acknowledge that your fundraising incentive structure can make you more flexible. Venture capitalists can pressure companies to grow faster than they can afford, or prioritize their own exit multiple for long-term business success. Why should entrepreneurs trust you to think about all stakeholders? What can you do to ensure that your incentives are linked to your portfolio companies? At Beyond Capital Ventures, we’ve decided to give each of the founders of our portfolio a percentage of our profits – a structure we call equitable ventures. We see every founder as a potential owner in our fund. Our success is their success, and we want to share it with those who are working hard to raise it. In this way, we show the founders that we really are together.
2. Take an active and collaborative approach
When you get to know a company through your hard work process, understand its unique needs and where you can help. Be simple about your timeline, concerns, and priorities for managing expectations. We want to be a true partner of our portfolio company, so we make sure we have communication Always Respectful and sympathetic. The founders will actively share information with you if you make room for it. Appropriate perseverance should be about finding opportunities and prospects for a startup, not just what is there now or where the company is lacking. Investors should act as strategic partners and advisors.
Related: 3 measurable ways collaboration grows business
3. Offer value-addition through support from your network
As a Founder-Friendly Investor, you can take the company forward and become a champion through your value-added network. When Beyond Capital Ventures goes ahead with an investment, we invest our team time to raise capital and collaborate with co-investors. We want our portfolio companies to get the support they need. Our team has built relationships with service providers such as law firms, accountants and financial-analysis firms, and has created an expert advisory council of individuals with in-depth knowledge across a wide range of sectors. We work actively to share insights and guidelines from our network – when requested. For example, in our first fundraiser, we collected 80 times the amount we invested in our portfolio. Are you ready to offer support? Will you really open the door for your portfolio companies?
Related: How Networking Can Increase The Net Worth Of Your Business
An active, people-first approach to working with portfolio companies is a combination of careful reciprocal selection, intentional direction, and motivational alignment. Thus, being “founder friendly” means providing management teams with a fair opportunity and environment to build the next generation-defined business.