Basic Oaths For Investors, And For Founders, Too

I’ve been thinking about this tweet from Garry. I like the idea of an oath, at least in theory, because it forces one to stop and think about what they’re entering into and what they’re signing up for. Garry is one of the small handful people I follow very closely on Twitter and his blog because he is influential, he is a great picker of talent and companies, and he’s doing it all for the right reasons.

In this tweet, I think everyone can agree that investors should (for the most part) move quickly, respect a founder’s time ant attention, get out of the way if not adding value, and of course do no harm in the heat of battle. There are investors that probably do harm, though I have to think that’s a small minority — having worked across a wide variety of firms and with a wide variety of personalities at the GP level, what I mostly have observed is quiet, consistent coaching and support. That said, no doubt investors can always improve and remembering these basic tenets would be wise.

It’s easy to generalize across “all investors” but then it wouldn’t be fair to generalize across “all founders” either, would it?

Speaking of oaths, if investors were to sign a basic, clean, simple, no-nonsense oath, maybe founders should to. I’ve been trying to think what would make up the most basic  “founder oath” in accepting venture capital?

(1) Brief Quarterly Updates To Stakeholders: I wish I would receive these. Just 5-8 lines in bullet points, including homework for investors on where to help. It’s rare to receive these and often when I do, they’re way, way, too long. Of course, at some point as the company matures from seed into an institutional round and set of investors, this matters less. This also helps early investors prep downstream investors ahead of time when there’s a potential match between an early-stage company and a larger VC firm. Informing the early investors may help tell those stories better.

(2) Transparency In And Around Potential M&A: I was surprised that existing investors weren’t often briefed on pending M&A. I can understand the sensitivity around leaks and sabotaging a deal, and M&A can be a complex topic (especially the first time through it), so people end up making decisions and then investors hear about it and the consequences often weeks or months later. That doesn’t feel right.

(3) Proactive Liquidity Consideration For Early Investors In Future Financings: With high-performing companies staying private longer, that means it’s much harder for early investors to sell a portion or all of their investment. When this does happen, the investor has to individually go and lobby the founders and others to even have a shot at this consideration. Why not just make it part of the regular dialog? Early investors don’t have to exercise this option, but it would be a nice gesture that’s not too administratively burdensome relative to the risk early investors bore.

(4) Realistic Modeling Around Runway, Future Financings: If founders could share basic bank balance stats in a brief quarterly update, I think early investors who are paying attention and have experience can easily point out when cash and burn may be too high and need a plan for future financing. Most of the existential risk here comes down to securing future financings. It’s easy to misjudge just how much runway someone has, especially when one thinks they can use the entire runway before needing to take off.

(5) Asking Investors To Do More: If the four tenets above are followed, then the investor should work even harder, and I’ve found that when the founder pushes me and other investors (over phone, text, email), other investors chime in to help, debate, and (dis)agree on a variety of things. It’s fun, quite social, and everyone learns. I wish more did that, even though it would kill my email inbox. But I love doing this investing thing, so when it comes to this stuff, the more, the merrier.

Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2018 Semil Shah.

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