How to Better Manage Relationships with Your VC

Posted on Apr 13, 2013 | 29 comments


Just back from 2 solid weeks on the road in Boston, New York & Philly.

heartI spent countless hours with VC firms, startups & LPs (the people who invest in VC firms).  I find these trips invaluable both from a relationship-building perspective as well as stretching my mind about our industry. I ask questions, test theories, debate topics of the day and then reflect upon what I’ve learned.

On my first real day back the first thought I have is that most entrepreneurs don’t manage their VC relationships as well as they could.

My observation is that many entrepreneurs have a strong relationship with the partner at the VC who invested in his or her company. After all, that is the person who best knows the details of your business, who championed your deal and whose head is on the chopping blocks if you become a colossal failure.

But you need to understand that VCs are partnerships. We make decisions as groups. And it would well be worth your while to broaden your relationships within your VC firm. Don’t just assume that if you keep you lead partner updated that everything will be good.

It’s best to think of your VC partnership as a customer. You would never sell to one department and then trust them to manage all of the relationships with other departments who have to use your software. Doing so would expose you to unnecessary risk that you don’t control.

Just as with sales, if you have a strong champion as a partner you will likely be OK. But you need to understand the politics of the VC who invested in you. Is your partner senior or junior? Are the able to get deals approved or do they struggle? Are they the type of person who’s likely to fight for you in tough times or to cut bait to avoid looking bad?

It’s worth contemplating as your fate my hang in the balance if you only have a relationship with one partner out of many.

For starters the obvious reason to broaden your relationships with other partners is that each VC partner brings a unique set of relationships and knowledge. If you’re not tapping into the full knowledge set and relationships of your firms partnerships I can assure you that you’re not maximizing the benefit of that firm.

Is there any reason a VC would not want you to meet with his or her partners? Sure. Perhaps they believe it isn’t a good use of time for each portfolio company to spend time with each partner. I question this logic but I’m sure some firms operate that way. Also, some partners are parochial and probably prefer to control the information flows – even if they don’t even acknowledge that to themselves. But in any event it’s your job to get past objections and meet multiple partners.

An an even more obvious reason to broaden your relationships is that in times of crisis and/or when you need follow-on financing that partnership support might be crucial.

Last year I was speaking with an entrepreneur who has failed to reach his milestones. He had 3 or so VCs and none were reaching out to offer to help with an inside round to bridge him. When I enquired how well he knew the partners at each firm he acknowledged that he really only knew his lead partners. And because he had done a party round (ie nobody owned a big stake in his company) nobody seemed to go to bat for him.

My recommendation was that he spend time with the broader partnership at each firm. He could either put it in the hand of his lead partners to go back to each of their respective partnerships or he could go meet those partners directly and make the case as to why his future would be bright.

I told him that if he did get the support of those partnerships that should be a lesson to him to keep all partners updated on an ongoing basis. Having a broad base of support in any organization is always a good idea.

Another thought is to spend time befriending the associates of your VC firm. Given how few associate jobs exist in venture capital you can be assured that these people are not only super bright & accomplished but also very career oriented and possess many skills that would be useful to you.

People write off associates to easily. I have read many blog posts (including from associates) that say that the real decision power lies with partners so meeting associates can be a waste. I think that’s short-sighted advice. While it’s true that partners generally control investment decisions, associates can be very influential.

I would again draw on a sales metaphor. While the department head might control the budget and the ultimate go / no-go decision on your product, there is often a more junior person working for her that does a lot of the analysis, makes recommendations and in other ways subtly influences the outcomes. In sales parlance we often call this person the influencer.

Associates are no different. I have directly seen deals that got more partner time & attention when associates slammed their fists on the table and equally lose support when associates present damning facts or experiences.

In summary, VC partnerships are like any organization. Your job is to have as broad of political support as possible to get help, introductions and positive decisions when you need them.

Of course your lead relationship will always tell you that they will represent your interests well so meeting other partners isn’t necessary. And in many cases that will be true. But I know that it’s also true that you’re mostly a line-item on a spreadsheet to many partners at a VC and if you can turn that abstract awareness of you into a real human awareness you will increase your odds of positive outcomes.

Given the importance that investors can play at critical junctures in your company – I’d suggest you broaden your VC relationships.

  • http://arnoldwaldstein.com/ awaldstein

    Hi Mark

    Of course you are correct and points again to the need for smart communications skills, whether you call them networking, marketing or sales. Working your contacts wisely is smart advice, requires skills beyond many.

    Some VCs make this easier. Partners that blog help. But in my experience, this status quo is set by your principal contact. If that individual value this, it can happen. If not, not usually.

  • http://joeyevoli.com/ Joe Yevoli

    Great post, Mark!

  • http://mattr.co/ Jack Holt

    Makes a ton of sense but I’ve never thought about it. I’m betting the “parochial” VCs are the ones with less real selling experience.

    Thanks Mark. Jack H.

  • http://bothsidesofthetable.com msuster

    I agree that if your main contact enables broader communication it’s far easier. Still, it’s in your best interest to make it happen and the best entrepreneurs always find a way even when it’s not easily paved for them. It’s important.

  • http://bothsidesofthetable.com msuster

    Yes. Likely so. And perhaps also likely more blockers of your broadening your relationships. Still, find a way.

  • http://arnoldwaldstein.com/ awaldstein

    Yup…

    I still hold to the old definition that the best CEOs (read entrepreneurs) are marketers who can manage to a P & L.

    The best really do this by nature.

    Trust you enjoyed NYC when here.

  • http://twitter.com/rodolfor Rodolfo Rosini

    Just as in sales, you don’t spend time with those that can only block a deal and not approve it. Speaking from experience I agree that all associates from tier 1 VCs are bright. And spending time with them is an investment in the future as they will probably land a partnership in a VC firm down the road, not to mention useful feedback.

    But never spend time with an associate or a principal expecting to do a deal. Their own firms do not trust them to do investments so why should you? (Some VC firms allow principals to pitch investments on a near-equal basis).

  • http://www.hypedsound.com/ jonathanjaeger

    I wonder if this transparency and relationship-building is partly solving itself with VC firms now putting more steam behind marketing efforts and network-building for their startups. VCs are trying to differentiate themselves by providing extra value to startups on top of money and advice, so if startups are using every resource from a VC firm you’re bound to build stronger relationships with those who aren’t your lead partner.

  • http://bothsidesofthetable.com msuster

    that might be. but I notice the entrepreneurs tend to stick pretty closely with their lead partner

  • LaVonne Reimer

    Really important post. VCs make this much easier when they invite portfolio CEOs to firm-wide events. You noted below that entrepreneurs tend to stick close to the lead partner even then but what a wasted opportunity to not network. Another opportunity opens up right at the outset. Unless it’s a total party deal you have to present to the partnership. Then it’s just classic sales. Do homework on every partner before that. During the meeting listen carefully to the questions various partners ask. What causes them to lean in can indicate an interest or connections that could be really useful. Using that as a basis to begin building a relationship with even one or more additional partners lays the foundation for broader support.

  • http://robertsaric.com/ Rob Saric

    My only issue with your post is the assumption that ‘associates’, in most cases, carry some value. In my experience, typical VC firms (not tier 1) have an abundance of associates that in the most respectful way act mainly as “executive assistants” to the partners. In line with your sales metaphor, I see ‘associates’ usually as gatekeepers, and it’s wise to stay in their good books, so to speak. But for the most part, unless a partner recommends leveraging one of their associates, I won’t work hard to build a relationship. Yes, associates can become great champions for the company internally but most are focused on deal flow, attracting great entrepreneurs/startups and then handing off. If there are hybrid-associates with deep operational experience, some buying power, decent existing network and on a track to become a partner … different story.

  • http://bothsidesofthetable.com msuster

    hasn’t been my experience. While I agree that associates often don’t have the investment committee vote, they influence outcomes behind the scenes. just like in any traditional company as I outlined.

  • http://blog.maxlytvyn.com/ Max Lytvyn

    This is really good advice, as I know I’d likely overlook parts of this should we raise funding at any point. But even though I realize how and why these things are important, some of them are a turn-off for me and likely for other entrepreneurs. “you need to understand the politics of the VC who invested in you” – Of course you need to, but wouldn’t it be better if you didn’t have to? The fewer things you have to worry about, the higher the chance you are going to get them right. I’d rather focus on the product, customers, team, growth – that’s already a lot… Adding one more thing to the plate would be like a tax on productivity for all the other things.

    Another aspect to consider is that people who do great things tend to be very focused, often maniacal – they forget to eat, sleep, call their families. Isn’t it a bit too much to expect them to be diligent about managing investor relationships and following internal politics of their VCs? They have to do it to grow the business, so it is indeed their job. But I think both parties would be better off if a VC made this process as easy as possible for its entrepreneurs. VCs are more experienced at relationship management and have more resources to dedicate to it, so it would make sense if they would take the lead there or at least provide entrepreneurs with as much help and guidance as possible. I think this can be a great way to reduce the tax on focus and productivity that often comes with external funding. Probably can be a competitive advantage for a VC as well.

  • Robert Keith

    Two years of studying VCs and I have a lot to learn. I recently met Kate Castle from Flybridge and immediately saw that she is the type of person it would be essential to keep in the loop, no matter that she is not listed as a partner.

  • laurayecies

    I have really appreciated the opportunity to get to know the other partners at both DFJ and Sigma who have been longtime investors in SugarSync. They did a good job of facilitating this process by having events (CEO summits and other focused meetings) where I was able to get to know the other partners informally.

  • http://www.crunchbase.com/company/vumedi Roman Giverts

    Mark,

    Nice post. Somehow your posts always hit something I’m thinking about at my own company… Relationships with VCs

    At my own company, I’ve been lucky enough to only raise money from individuals, namely doctors. It’s great, they help a ton and let you do your thing. As things have grown, we finally realized we can’t raise a very large round from doctors, it would take too many people. I’m really dreading the process of raising money from VCs. The reason I’m dreading it is the partnerships. My current investors are individuals, they’re in it themselves (and their wives) but they don’t answer to anyone else. And they will be incredibly happy with a 5x return. My fear with VC is that while the lead may have that personal relationship with you, he or she answers to their partners and LPs which they have promised more facebook investment. So every company they try to force to be Facebook. I know my company is not Facebook. i understand our trajectory is in the 100 of millions not billions. Hell, even 10s of millions is an incredible outcome for a 26 year old founder like myself. But VCs, the institutions not individuals, don’t like that. So they force every company to try a different trajectory. If you only need to hire 10 people they make you hire 20, if you only need to spend 1/4 of your money in the first year they will make you spend more than half. Why? I think to force to you come back to the money well and be desperate to allow them to take more control of you and the company. Since you and every other portfolio company won’t be Facebook, they figure they might as well take as large of a share as possible of those 100s million exits. So you spend all your Money, then burn out or get rally close to burning and hopefully the outcome leads to a good result for the entrepreneur. But often times you have a meebo. An enormous exit and no one made any money.

    That’s what I fear of getting into bed with VSs.. Am I being cynical or how do you manage your trajectpry with your lead investor and the entire partnership?

  • http://www.BoxFreeIT.com.au/ Sholto Macpherson

    *sound of every GRP entrepreneur scrambling for the phone* I’m guessing GRP partners are going to be sick of the flood of calls from your portfolio right about… now.

  • http://bothsidesofthetable.com msuster

    “During the meeting listen carefully to the questions various partners ask. What causes them to lean in can indicate an interest or connections that could be really useful.” … smart.

  • http://bothsidesofthetable.com msuster

    “Isn’t it a bit too much to expect them to be diligent about managing investor relationships and following internal politics of their VCs?”

    Perhaps. But ….

    As much as people don’t like the idea of “politics” the reality is that all human relationships involve an element of this and I’m just trying to spell it out a little more clearly for those that don’t always gravitate towards understanding it. Marriages involve politics. Families involve politics. Even small startups involve politics. It’s simply human nature.

    Should VCs make it easier on you to not have to deal with the politics? Of course. But even the most transparent, open and helpful VC firms have issues such as:
    – retiring partners
    – non-performing partners
    – biases of past investments gone awry
    – whatever.

    I’m simply saying, “ignore how decision making happens at your peril”

  • http://bothsidesofthetable.com msuster

    great data point. i like flybridge so that is good to hear.

  • http://bothsidesofthetable.com msuster

    and many VCs now do these summits which as you point out are a great way to broaden your partner (and associate) relations

  • http://bothsidesofthetable.com msuster

    There are many VCs who invest at different stages. Some early-stage VCs won’t have such a big requirement on your being the next FB as long as your valuation in the rounds isn’t too high. They will go in wanting a 10x minimum but believe me they’d be happy if you hit 5x (depending upon how long it took).

  • http://bothsidesofthetable.com msuster

    Ha. That was not the intent and will perhaps be an unintended consequence. Although I often encourage the CEO’s in whom I’ve invested to get to know my partners.

  • Guest

    I have to agree with (suck up to) Mark in this one. In my first enterprise startup, we invited executive assistants, managers, and their spouses to boondoggles. I even kept open the invitation to a senior director who had been fired after the invite went out. He ended up working for a competitor, who became our biggest customer a year later.

    These people can not only make your life much easier as a vendor but they usually grow into directors, VPs, etc.

    I have to imagine that it’s the same with Associates at VC firms – these are connections that you invest your time in that may or may not pay off in the long run.

    And you might help them out in their careers, which is worth the time.

  • http://ohheyworld.com/ Drew Meyers

    Mark, great topic of discussion here. Though I haven’t yet taken money from investors, relationship management is a dynamic I received a ton of of exposure to while at zillow, and I feel fortunate to have learned from people that were very very good at it. The same dynamics you talk about with respect to VCs apply in a business development role…a strong proponent for you (& your company) is really the only way to get any major partnership completed. And even once you strike & implement the initial deal, maintaining, strengthening, and broadening your relationships with your partner is vital. If your primary contact for your partner leaves the company, you are at a significant disadvantage if you don’t have other contacts to champion for you internally – as any major partnership is constantly under fire from competitors and a strong internal ally is what keeps those deals together.

    Any entrepreneur that doesn’t understand, and invest heavily in, relationship management with all the various stakeholders of their company – customers, partners, employees, advisors, investors, etc – is going to struggle no matter how you look at it.

  • StartupBook

    “If you wanna be my lover, you gotta get with my friends” Tell ‘em, Mark.
    http://startupbook.co/2013/04/16/mark-suster-if-ya-wanna-be-my-entrepreneur-lover-ya-gotta-get-with-my-vc-friends/

  • sketharaman

    Nice post. Short, sweet and one hard-hitting message. Kudos. Re. “It’s best to think of your VC partnership as a customer. You would never sell to one department and then trust them to manage all of the relationships with other departments who have to use your software.”, in our experience, many companies of varying sizes do exactly what you say they should never do even in sales! For more than one reason – personal aggrandizement, for example – many sales and delivery people in many IT companies raise the stature of their primary contact and primary project at a given account to sky high levels. For the lack of bandwidth, their top management is unable to figure out the true picture. In a recent example, a large IT services company thought it owned a dominant market share of IT spend in a large bank, only to realize, after we stepped in to carry out an account strategy review, that the company was only active in the corporate banking SBU of this bank, figuring nowhere on the radar of the IT and procurement departments in retail banking and investment banking SBUs of the same bank.

  • rob

    Its great to get to know the players involved, very rewarding.
    Robert Mahdavi
    CEO, PPM.net

  • henry

    Yes it true, that communication is crucial not just between the VC but also your customer.http://www.incube-8.com/