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Three frameworks for a founder and VC relationship

Identify the right framework for you

Lessons learned from investor by Alexander Rosen
May 29, 2014 | Comments
Short URL: http://vator.tv/n/370a

In the last two decades as a venture capitalist, I've seen three primary styles of VCs working with startup founders.  I found that one of them works best for me, and want to share the alternatives:

1. Mentor: This is a classic "old school" venture capital model. Think John Doerr and Michael Moritz working with Larry Page and Sergei Brin in the early days of Google. The VC is often older, sometimes a repeat entrepreneur, sometimes not. The VC provides lots of hands-on advice and coaching. The interactions between the VC and founder are frequent, and the VC spends much time regularly at the company.

2. Monitor: This often occurs in later stage financings. The growth-oriented VC gets regular updates on the business, sometimes between board meetings, but often just quarterly. The relationship is primarily that of a one-way information flow. The VC can provide opinions on key decisions, but usually most of the decisions are made without his/her involvement.

3. Consigliere: Popularized by the movie “The Godfather,” consigliere means “advisor” or “counselor” and is still a common title for members of city councils in Italy and Switzerland.  As an aside, I love the movie, and my wife danced the father/daughter dance at our wedding to the theme song.  So while founders are clearly no Italian mafia dons, the analogy resonates for me.  This type of VC acts as a trusted advisor to the founder. The founder is in charge (back to the mafia don analogy for a second), and the VC is there to help, as much as needed, wherever is needed, utilizing his/her prior experience and connections.

For different founders, and indeed for different combinations of founder and VC, the “right” models are different. For me, the ideal relationship usually is that of a consigliere. I'm there to help with advice or action when needed. War-time or peace-time consigliere, for those who remember the movie. Day-to-day, I have full confidence in the team to grow the business -- otherwise I would not have backed them.

Here are some instances when I have been able to help out the founder:

  • Comparing notes with a CEO on a VP Sales candidate. At 12:30 am.
  • Finding a doctor for an ill founder.
  • Helping a founder sell a small percent of their holdings in a secondary transaction.

So as an entrepreneur, how do you figure out the type of VC relationship you want? Here are a few questions you can ask yourself:

  • Do you want to raise as much money as possible, send regular reports to investors, and be left alone?
  • Do you want a venture capitalist in your office on a regular basis discussing all aspects of your business?
  • What kind of a relationship do you think this particular VC wants?
  • Would you like to have someone you can call at a moment's notice when a big or small issue arises? Or do you have multiple advisors already playing that role?

Answering the above questions will help guide you towards the right VC partner for you and your company.

(image source: finefrugality)

 

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