Alignment and Collaboration Between Founders and Investors

by Andrew Heyman Partner, GoPoint Ventures

Venture investors are often quite vocal about their high level of alignment with founders. And, for the most part, VCs are indeed aligned with their portfolio companies. After all, everyone wants the company to grow and ultimately be sold for billions. When everything is working, the unicorn fairy bestows riches upon founders, employees, and venture capitalists alike. But, even the most successful founders will experience challenges related to misalignments and differences in strategic vision that can arise as companies grow. As entrepreneurs raise venture money and add more investors to the cap table, here are a few areas related to alignment and collaboration to pay attention to.

The Value of Strategic Collaboration

All things equal, investors prefer to buy into a company at a lower valuation while founders prefer a higher one with less dilution for them. The entrepreneur’s goal, however, should not be to only maximize valuation. Finding a venture partner that invests at a reasonable valuation and can truly help founders grow the business is key. That’s why it usually benefits entrepreneurs to get to know multiple VCs. This is especially important for first time founders who shouldn’t be shy about vetting the lead investor’s potential value add. Talk to the VC’s other founders and try to quantify how much actual time and effort is spent (by senior partners) collaborating on strategy and capital allocation, aiding in business development, vetting new hires, and improving the brand. Some venture firms take this partnership role seriously, while many are busy looking for new deals and getting one-way updates from their numerous portfolio companies. Generally, VCs who are more collaborative understand the business better and tend to be more aligned with founders over the long-term.

A company’s strategy, especially at the early stages, is continuously evolving. Often there are real debates (within companies and between companies and investors) about the optimal way forward. A good venture partner should be a collaborative advisor and sounding board, helping founders sort through the various strategic paths as the company grows. And good founders should know how to leverage their VC’s knowledge and experience while still being a decisive leader. Disagreements should become productive discussions that ultimately make the business better.

It is especially important for first-time founders to ask their venture partners for real help across various aspects of the business. After all, while an entrepreneur might be laser focused on his particular business or market, an experienced VC investor has a different vantage point…he has been involved in hundreds of businesses. From go-to-market strategies to exits, a seasoned venture investor has seen what can go wrong, what can go right, and everything in between. VC partners are much more than just a source of capital, and the best founders choose their partners wisely and make the most of the collaboration.

Subsequent Rounds and Optimizing the Capital Table

Venture firms think about funding rounds differently. Stage-focused funds usually invest the bulk of their capital at a specific stage or series, while some VCs make significant investments across a company’s numerous capital raises. Most VCs fall into the former category. For example, an early stage seed focused fund might lead a company’s first seed round, participate in a later seed round (to show support and top up their position) and then let new investors take over at the Series A stage and beyond. This is normal but not ideal for founders who find themselves having to secure new lead investors as the company grows.

As the cap table expands, there can be conflicts between new investors and old ones when it comes to strategic influence, rights, and controls. Ideally, a founder should choose a VC partner that can lead multiple fundraising rounds while still being helpful as the company brings in other high value investors. Again, consistent collaboration from a strong lead can be critical to reducing conflicts and increasing long-term alignment.

When looking for a lead investor, founders should focus on firms that are not only value add and deep-pocketed but also helpful in building a high-quality cap table. A good indication of alignment in this regard is a lead investor’s willingness to flex up or down on each funding round based on the company’s needs and the participation of other good investors. Founder’s should look for a lead that will pursue the best interests of the company.

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