CALGARY, AB, Mar. 10, 2013/ Troy Media/ – When a new venture is started, everything is positive. Things are happening fast. There is a rush of excitement, people are fully committed, hours are long and creativity is cranked to its peak. When traction, media attention or buzz begins revving, the venture capitalists are sure to notice. Cash comes in and everyone is pumped up. The founders are proud, employees are often happy to be part of that addictive environment and venture capitalists are wondering if this is that one in 10 that will catapult their fund into the upper quartile of fund performance.
Most often, life doesn’t allow the venture to glide along as was planned in the spreadsheet. The venture will usually and harshly test the resolve, patience, vision and plan that had been created. It is in these moments when you have the opportunity to rid the chain of weak links and attach stronger ones where lesser ones occupied the space. Founders and partners fight when milestones are not achieved. Strong ones will rise to the challenge, weak ones will leave. Individual employees can create dissent among the team when they think they know better. If they’re right, listen and act. If they’re wrong and they keep bashing the company, root them out before they dampen the enthusiasm of others. If trouble has gone on too long, customers leave when the vibe is negative.
When this happens, innate human nature has a tendency to not expose the faltering bits of the business to the VC who has backed the deal. Few care to admit that they’re not entirely in control of the situation and, as a result, most entrepreneurs go quiet. Don’t. Have the courage to admit you need help.
I recently noticed the battery light was on in my daughter’s car, so I asked her about it. She said that it had been on for a while, thought it was odd but hadn’t considered it to be important enough to bring it up because everything seemed to be working fine. Most VCs are former entrepreneurs and have the experience of the rushes, problems, and outright failures of early stage ventures. Whether it’s just a battery light or the engine is now sitting in the backseat, communication with your VC is critical. They’ve seen a lot and will often either know what to do or who to call. That battery light that seems odd should be brought up to avoid later trouble and if a major and sudden disaster strikes, get on the phone immediately.
Hopefully, your VC is supportive and sufficiently active to assist you through the situation. However, if you do make this call and get nothing, there are other factors at play. Let’s say you received $3 million from a VC with a fund size of $90 million in your Series A round of financing after friends and family have been tapped out. This would indicate that you are a serious investment for them and that they will do whatever they can to help you out. Many times however, VCs will make much smaller bets of $300,000 or less on young companies in order to keep the company close to them to see what they can get done with the investment and to keep competing VCs out of the picture should the company gain sudden traction. If your VC has participated with you in the latter example, chances are that their help will be limited to phone call support and they’ll let you twist in the wind if you don’t right the ship on your own.
Often the entrepreneur will not disclose the issues that are occurring because they are fearful that the VC may swap in a new CEO. Be aware that you will establish greater trust and cooperation with your VC if you’re forthright. There are lots of examples of VCs who will back an entrepreneur even when the first one failed because that person was a good entrepreneur and because trust had been established throughout the cycle of rush and crash. Open communication with your VC can help you, your company and your longer-term prospect of later support.
Troy Media columnist Warren Bergen is the Vice President for Corporate Development with Alberta-based AVAC Ltd. Warren will be writing twice a month
In : Business