It may seem obvious, but your interests as an investor will sometimes diverge from those of the startup. When a conflict of interest arises (between you and the startup or other third parties – such as VCs), it is important to resolve this. If a dispute of interest arises (between yourself and the startup or between you and other third parties – e.g., Always err to the side of doing what is right for your startup.
Examples include:
Reduce your investment to allow another investor to help the startup.
Even if your financial interests are not served, you can help a startup to be acquired if that is what the founders want.
It turns out, in the end, what’s best for a startup is also the best thing for you. Your reputation will grow, and so will the number of entrepreneurs that want to work with you.
Conflicts of interest should be disclosed upfront
If you are in a situation where there is a conflict of interests (e.g., If you are a competitor in something that the entrepreneur believes could be competitive, be upfront about it with the entrepreneur as soon as possible. It can be not easy to know before meeting in person, as an introduction email may not include plans or other details.
Conflicts of interest can develop over time, and they are difficult to avoid. One company might pivot into the market of another. Sometimes, two companies may be directly competing. Most entrepreneurs are overly concerned about potential conflicts of interest in the future [1]. You should be upfront about any potential conflicts of interest and discuss or resolve them with the companies that you already work with.
You should not forward a pitch deck that you receive out of the blue containing proprietary information. If the company requesting a meeting is a competitor of one of your portfolio firms, do not send it to them. It is not fair to use the pitch deck against an entrepreneur who has reached out in good faith.
Ask how you can assist rather than demanding updates
You should update a few investors regularly as an entrepreneur. Your board members will perform this task if you have raised series A. The regular updates that were required to be given to a small group of people prior to the series A helped you maintain a clear and consistent path for your company. This also ensures that there are people familiar with your company and who can be more helpful.
Please leave it to the entrepreneurs to decide how to update investors. You should not ask for detailed updates just to be informed. Ask how you can assist, and an update will usually follow. You are wasting the time of the founders if you don’t ask how you can help.
Founders often get caught in “a work cocoon” and fail to ask for help from their investors. This help can sometimes save founders time or force them to change their direction. Asking how you can assist the entrepreneurs will save them a lot without having to waste their time by asking for detailed metrics.
Follow up immediately if a startup requests help. You may need to close a candidate, chase down a lead in sales, or provide feedback on a contract. Do it quickly.
Sign documents quickly (and follow up in general)
Within 24 hours, you can turn any documents (investments or M&A) into us. Entrepreneurs will feel less stressed. I have violated this rule recently as my startup has taken up a crazy amount of time.
Do not nickel and dime your startup. Be gracious during acquisitions
During small acquisitions, I’ve seen some of the worst behavior from angels [2] and founders[3] that I’ve ever witnessed. In an acquihire, the entrepreneur, his team, and the company that buys them commit the next four years of their life to the company. Angels will make at least their money back, or even 2X. I’ve seen professional brand-name angels browbeat and pressure entrepreneurs to work for a bad company in order to make a little more money. This incremental return may not have a significant impact on their portfolio, but it can mean that the entrepreneur is stuck in a bad company for several years.
Acquisitions can be stressful for founders. Angels should not be rude at this time. However, some do. Angels shouldn’t allow themselves to be screwed over during an acquisition. You should be able to communicate your thoughts and feelings about what is fair and not let the entrepreneur get stressed.
Be a psychiatrist if needed
Startups can be hard. Sometimes, founders need to vent. Or, co-founders may need someone to mediate. Some of the most successful investors can assist founders in this difficult time. Michael Dearing can be a good example of a startup whisperer.
Be honest
Entrepreneurs need to be given straightforward advice. As new managers, entrepreneurs might make mistakes in dealing with employee issues. Maybe the VC courting the entrepreneur is untrustworthy, and they should be aware of it. In these situations, blunt and honest opinions are often the best way to go.
Remind the entrepreneur that you are only sharing your experience and opinions. It is up to them to decide what to do with the information. Generic advice for startups is often incorrect. Do not be lazy by just copying patterns. Instead, understand the context of the business and provide advice that is based on the facts. Explain the assumptions that underlie your advice if your beliefs are wrong.
Celebrate the founding fathers
It is hard to find success. Offer to bring a case of beer or a bottle of champagne if the entrepreneurs reach a major milestone. If you own a big portfolio, consider organizing a party. Celebrate key moments when you can with entrepreneurs and their teams.
