Crossing the VC/Founder Relationship Chasm
Crossing the VC/Founder Relationship Chasm
SCENARIO ONE
VC: “How long is your runway?”
Founder: “Maybe 3 months.”
VC: “Why are we just hearing about this now?”
SCENARIO TWO
Founder: “We’re really struggling to find a head of product — do you know anyone in your network who can help us source a great person?”
VC: “Yes. Will get back to you asap.”
Founder (a month later): “Any luck finding strong product lead candidates?”
VC: “ACK. Yes, on it.”
Founder (a month later): Crickets.
SCENARIO THREE
VC: “We need your quarterly report — please send us ARR, Cash Burn, CAC, and P/L as soon as you can. Love to see big new customer wins as well. Oh, and Retention/Churn metrics. We have an LPAC meeting in a week, really appreciate your help!”
Founder: “Sure thing. Will do.”
VC (three days later): “Hey, checking in on those metrics. Please send ASAP.”
Founder (to herself): “Jeesh. We haven’t heard from them in months. Now they want numbers. I’m busy raising, will get to it when I can.”
VC (to operating partners): “Why don’t we get the numbers we need from founders regularly?”
CHASMS ABOUND
If any or all of these scenarios resonate with you, we would not be surprised. Too many VC / Founder relationships are dysfunctional — too many VCs treat their investments as line items on a spreadsheet; too many founders treat their investors as a distasteful cost of raising capital.
Phenomenal longitudinal research by Creandum and Kauffman Fellows shows that little has changed in the 4 years since the original research was conducted that illuminated the vast differences in how each party perceives the value delivered by the other — VCs overestimate their level of impact and helpfulness. Founders rate the average impact of their VCs as a mere 5.2, whereas VCs believe their impact to be rated a decent 7.1 — a 35% difference.
Founders need help — they perceive VCs falling short on delivering across nearly every key dimension of the relationship. Why is this still the case?
“One (reason) could be the quality of the VC and their relationship with founders. There are many VCs who simply are capital allocators and only call the founders to yell when they get a negative investor update. There is also a massive difference in terms of relationship and network between the top and medium VCs. The ability for the VC to leverage their network for hiring, biz dev, fundraising, etc. can be dramatically different.”
MENTOR CAPITAL — A NEW WAY FORWARD
Writing a check is just the first step in Growth Warrior Capital’s relationship with diverse and female founders — we introduce them to subject matter experts whose lived experiences mirror those of each of our founders. It’s our highest and best use, so to speak.
Because when those moments occur, which they always do — like right now! — when founders need a support system, they know they can rely on us because we’ve been there ourselves and have built a network of trusted advisors and partners who believe in the same mission we do. An extended family, so to speak. We call this our way, the Mentor Capital way. Mentor Capital provides conditioning and support in exactly the ways Founder indicate they need it:
Mentor Capital builds a level playing field for diverse and female founders, providing guidance — conditioning — for what the startup journey entails for them specifically, what the broader investment industry is looking for, and how it values and assesses success. Mentor Capital helps these entrepreneurs fill gaps in their networks with crucial operational, investment, and consultative connections critical to financial management, GTM, team building, and, perhaps most importantly, a founder’s personal growth.
Here’s (the basics to) how we deliver Mentor Capital:
- Prior to investing, if we simply fall in love with a Founder’s vision, big ideas, products, and team, we then conduct rigorous diligence to elevate our confidence the business can have multigenerational impact. The process illuminates founder dynamics that provide us line-of-sight on their ability (or lack thereof) to fully realize their “inner growth warrior”, often including “what-if” scenarios that push them to honestly express how they would behave under both expected and (wildly) unexpected challenges.
How We Help IRL
During a due diligence call, we asked the Founder of an early-stage (pre-Seed) tech company we had been seriously interested in “What would you change about your engineering team if you had the resources, given that your plans to scale are aggressive from a feature/function standpoint?” Founder’s response — “Nothing. I wouldn’t change anything.” Our experience red-flagged this comment, calling to mind the storied adage “The team that got you where you are now is likely not the team that’s going to get your where you want to go.” Founder was just inexperienced, didn’t see what we’d seen too many times in the past. We did not invest. BUT — we spent real time helping the Founder understand why the response became a deal-breaker at this time. Founder is on our “watch closely” list and we will be there to advise as-needed. - After investing, we provide access and connections to the most important resources founders need at that moment AND for the future. Nearly every founder we’ve met, not just the founders we invest in, are eager to leverage our own relationship currency to top-tier investors, bankers, and other finance leaders who think, look, and speak like them. Further, our network of engineers and technology accelerators, marketing and design resources, sales and business development leaders, becomes an open source of advice and further network-building, if not flat-out hiring.
How We Help IRL
One of our Founders deployed a grass-roots, bottom-up GTM, and had generated strong traction from it in year one. Growth Warrior Capital had a connection to a resource that we believed could accelerate growth exponentially from a top-down perspective. They met, signed a deal; Company is now scaling more aggressively from this GTM pivot. - Like many other VCs, we request each of our founders submit quarterly reports on key metrics. The Mentor Capital way, however, obligates us to do more, and we do — we proactively reach out to our founders versus waiting to hear from them; we consistently share relevant industry information we gather from our own networks that can make a difference; we connect them with new people we meet who can (and should) join their own “whisper” networks.
How We Help IRL
One of our LPs “whispered” in our ear what they had learned about typical valuations in one of our portco’s domains as we conducted due diligence. We knew they knew more than anyone else from both the investor and the founder perspective. We informed the Founder, who then re-priced the deal. We invested. Everybody won. - For those companies that do not yet meet Growth Warrior Capital investment criteria, we have architected a multifaceted program, starting with this course “How to Get Funded to Grow Your Business”, to educate, inform, and condition entrepreneurs about funding, company-building, and scaling stages along the entrepreneurial journey. This methodology rigorously exposes them to feedback on nearly everything they’re responsible for in early-stages, including pitching, conducting advisory board meetings, evaluating key talent evaluations, assessing new business model opportunities, scaling GTM plans, and investor relations, among many other critical experiences.
Mentor Capital doesn’t work if we haven’t built a relationship that extends beyond cap table metrics and financial projections. Robots can do that kind of work; investor platforms already exist that connect directly to founder bank accounts and internal CRM systems. This is the easy stuff.
We may anchor our interest in investing in a B-round with a heavy emphasis on A-round returns, but returns alone do not make a relationship. Sure, when we’ve invested in 100 companies, the dynamics of maintaining granular, frequent exchanges are more difficult. But it’s not impossible. Mentor Capital is the way — the only way — to bridge persistent VC-Founder relationship gaps.
