Lately we've been witnessing an increasing number of entrepreneurs whom we've met previously, spent time, gave guidance and support, and encouraged them to stay in touch as develop their plan. Then out of left field we hear they are raising a round. Fantastic, we say. We'd love to get an update and hear all that's transpired since we last connected. How about we get together week after next; between travel and meetings, we're totally jammed next week. Hold on, they say, this round is coming together fast. Can't we squeeze in something sooner? Well...
Late last year, my friend and co-investor Mark Suster wrote a seminal post titled Invest in Lines, not Dots. The key take-away from Mark's post is that relationships develop over time, and given the importance and longevity of the VC/founder relationship it benefits from the cumulation of interaction and data sharing between the parties. Kind of like the precursor to a marriage. This post resonated with me. I did not take Mark's post to mean that moving slowly is a prerequisite of receiving VC funding. Not at all. What it does mean, however, is that founders are as committed to investing in building the relationship as the VC, and that funding events become processes instead of panics and fire drills. In my experience, such frenzy is seldom necessary, but for some reason there appears to be an epidemic of "This deal is moving fast; if you want in you've got to hurry." Invariably, my response to such entreaties is: No.
Unless you are investing on the basis of "social proof" (which works for some but does not work for me) or have a historical relationship with the entrepreneur (which means that the investor has a store of prior data from which to draw), it is hard to see how being forced into a rapid-fire decision is ever good for either the buyer or the seller. I use this verbiage because what should be a relationship-building process has become a transaction, something which gives me great concern in the context of early-stage investing where things seldom go as planned. How are investors with little knowledge of the founder or depth of understanding of the business going to react in a crisis, or simply in difficult, challenging times? I can tell you how: not well. Lack of knowledge and data breeds panic, neither of which is constructive for giving a founder sound, relevant advice. Shotgun weddings seldom make sense. So unless the entrepreneur wants to fight the odds, I'd strongly recommend against it.
In short, we love building long-term relationships with founders where there is a mutual interest to invest the time and effort necessary to really get to know each other. And I'd strongly advise this relationship-building to begin outside the context of a financing when perceived time pressure and stress is high and the ability to invest in a relationship is low. If there is a thematic match between founder and firm, reach out early, share information, get advice and extract value and really test the quality of the dynamic. Because should you end up partnering with a particular firm, you'll be married to each other hopefully for a long, long time. Investing in the relationship will be the best investment you'll ever make.