“Cuando fuiste martillo no tuviste clemencia, ahora que eres yunque, ten paciencia”
“When you were a hammer you had no mercy, now that you are an anvil, be patient”
What is a VC? what do they do? once again let’s refer to our friends of Wikipedia: Venture capital (VC) is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT and software.
I recall having my first readings about VC in the book, Finding your Wings, it was written in 1996, but it’s a classic, so if you haven’t read it, I encourage you to do so. Before I go any further, I would like to set the grounds for this post, so please bear with me:
Lets start with the Founder. On its normal definition, a Founder or a Co-Founder is the the person or the group of persons who start the company. So, if my Mom, My Dad, My Uncle and my friend Sam gave me money and some advice to start the company, are they my co-founders ? Well… probably in strict definition… Yes, would this be convenient? I don’t think so.
The term co-founder (at least in Silicon Valley) is almost as a noble title. Your co-founders should be limited the most compacted and trusted circles, people who, by having them as part of your team, can really make a difference.
There is lot’s of research around what is the optimal number of Co-founders, and even that this is not an exact science, it happens to be that is 2.09… check this small post around the research. But in any ways… (and Gabe is going to hate me, because probably I’m about to spoil one of his favorites topics) one think that you learn once you have been doing this for a while,is that Venture Capital is one of the most risk averse industries. Surprised ahh?… as (again) Gabe always says, “VCs are always looking for an excuse to not invest” and like in any industry there are standards, and once you step out from those standards, you will you startup less fundable…Standards for number of co-founders, standards of equity percentages, standards for legal structures… Standards… Standards… Standards.
Now that we are all clear what a founder is, I’ll go straight into the subject… what kind of relationship do you expect a founder and a VC should have?
(as you all know, we always start our posts with a Mexican Proverb. the reason ? you can’t find any better place to find real wisdom, that in what has become Vox Populí, so taking the risk of over abusing them…):
– Donde manda capitán, no gobierna marinero (Where the Captain rules, no sailor governs)
– Cash is king
All of the phrases above are correct and accurate… but chances are that if you think that way about venture capital, you are probably in the wrong industry.
The relationship between a founder and a VC should be one of respect, symbiosis and collaboration. As in any relationship, each one is contributing something for a common goal.
On the early stages of a company, a VC is betting his assets (money, network, time and reputation) on a team and idea and their ability to execute on it. A VC can be no expert on every subject they invest at. A good VC will have experience on the field, a good network to make introductions and time to advise and steer the company from the board of directors, but definitely she is sitting on the co-pilot or back seat, the co-founders are driving the car.
There are a few VCs who are known as “Founder Friendly”, a few of the most famous are (listed in no particular order):
So, In my humble opinion, the characteristics you should be looking for the person with whom you are about to get in bed, and probably be married for some years are:
She was an entrepreneur before becoming a VC
She has experience in the field you are doing your startup at
She has the right connection among possible business partners
Her fund structure will allow you to have an exit when is more convenient to your company
She kicked ass when she was at the driver’s seat.
In a nutshell, she is contributing to the relationship more than “Just money”, she is bringing to the table “smart money” and even better… “Patient smart money.”
Leonardo Shapiro is Co-founder and Chief Strategy Officer of Yattos. A company that is trying to fix the broken worldwide financial system and has been described the the Bay Area VC’s as a “Fair Trade, Organic and Sustainable version of Banking.”