Building constructive relationships between founders and investors

This post has been edited from a speech I gave at the Follow The Entrepreneur 2019 Investor Summit in Taormina, Sicily

TL;DR

Once a founder invites an investor to acquire equity in their business, they are making a conscious decision to share in the journey. Their fates are now inextricably entwined. Yet while both regard themselves as champions of innovation, they approach the opportunity from fundamentally different perspectives. This creates an inherent tension, which sometimes results in the relationship breaking down, often to the detriment of the company.

The key is working out how to get the most out of each other.

Founders: Believe in your vision. Your investor is a conduit, not the solution. Their input is a perspective, not the rule of law. Ultimately they will never know more about your business than you do. But, you also have to recognise that you are not the finished article. Like an athlete, winning only comes if you train hard and stay focused, and this means building the right team of advisors to coach you. Your investor has the potential to deliver huge value in this regard, whether that be through their network, pattern recognition across their portfolio or their understanding of financial markets. It’s your job to learn how to extract it! At the end of the day you invited them on this journey with you, and you need them to stick with you to the very end.

Investors: You have huge value to offer, but don’t pretend you’re something you’re not. According to Diversity VC, only 8% of you have ever worked in a startup before! I’ve been in your shoes, before becoming COO of a startup, so trust me when I say it is very difficult to empathise unless you’ve done it yourself! Like a coach helping their athlete be the best, at the end of the day it’s their brilliance we need to nurture in order to make this company great. Be honest about where you have a meaningful experience and where you don’t. And be honest about what you can realistically deliver and what you can’t. Advice cloaked in experience when actually your experience isn’t relevant can be catastrophic for a founder. You have a unique position of authority. Respect it. Even if it means the best thing you can do is get out of the way.

EU venture funding: are we reaching maturity or polarisation?

The venture investment market in Europe is changing. Having spent the last few months out of the UK, it’s become a lot easier to recognise some of these shifts. First, we saw a spike in activity in European secondary markets with analysts expecting a 4x increase in funding activity for 2019. Then we saw Checkout raise their $230m Series A at an eye-watering $2bn valuation (26x their estimated revenue according to CrunchBase). And last week at Startup Grind’s European conference, two highly respected VCs, Jan Hammer (Index Ventures) and Simon Cook (Draper Esprit) took to the stage talking as if they’d just taken a leaf out of the old fashioned approach to investing: if you have an idea and an investor thinks they can make a decent return at acceptable risk, they’ll back you.

Scaling beyond the founding team: the leadership team emerges (phase 3 of 3)

Before you are a leader, success is all about growing yourself. When you become a leader, success is all about growing others.

Jack Welch, Chairman & CEO, General Electric (1981–2001)

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What do Andrew Grove, Ray Lane, Sheryl Sandberg and Eric Schmidt all have in common? All four are recognised as some of the greatest business leaders of their generation who built game changing companies that define the world we live in today. Yet none of them were the founders of the companies they built – they were all hired to support the founders on their path to growth and are widely recognised as a driving force behind their success.

Every successful business needs strong leaders and most companies won’t achieve this by exclusively promoting from within — whether because of experience or skillset, leaders will need to be hired into the company at varying stages to complement the existing senior team. Yet this can be an incredibly challenging undertaking, both in terms of finding the right candidate and managing the impact on the existing senior team and your role within it.

This post is the final part of my look back at the three phases of early stage growth and the people and process management challenges that arise as headcount increases and the business becomes more complex:

• Phase 1, when individuals working solo in their functional areas start to become teams;
• Phase 2, when you first start to use processes and structure to help build consistency and empower the team;
• Phase 3, when your leadership team emerges.

In this post, I focus on Phase 3 when the business undergoes a fundamental shift in how it operates as the management layer is defined.

Scaling beyond the founding team: building consistency across the business (phase 2 of 3)

If you’ve ever watched a yacht race like the Americas Cup you’ll probably have been blown away by the sheer commitment and determination it takes to win — pushing the yacht to its limit, aggressively hunting for the wind, heeling over on the very edge in an attempt to eek out an advantage over your rival. But what you might not see is what’s happening on deck — the crew working in complete harmony, focused on how their individual contribution enables everyone to succeed. When they take risks, they take them together. And when they get too close to the edge they back off in unison. Getting this balance right is critical, because it only takes one overexcited person to crank the winch too far and the whole thing starts to fall apart.

If you’re going to build a successful business from scratch, you need to emulate this unity as much as possible. It’s for this reason that blindly relying on hustle and bravado alone can only get you so far, because there comes a point where it has a negative impact on the internal harmony of a rapidly growing team.

This post is the second in a three-part series looking at the people and process management challenges that arise during the early stages of a startup’s growth journey, as headcount increases and the business becomes more complex:

• Phase 1, when individuals working solo in their functional areas start to become teams;
• Phase 2, when you first start to use processes and structure to help build consistency across the business;
• Phase 3, when your leadership team emerges.

In this post, I focus on Phase 2 when your newly hired team begins to take ownership and enables the business to make big strides forwards, but a lack of structure coupled with a thin senior team mean things can quickly fall out of sync as people push the boundaries of what they can and cannot do. This follows a previous post looking at when you bring your first hires into the business.

Scaling beyond the founding team: when individuals become teams (phase 1 of 3)

Over the past few weeks I’ve had a number of founders approach me seeking advice as they look to hire into their founding team. In each case, the common theme was about how you maintain the bond of the tight-knit founding team while managing the inevitable complexity that comes from scaling out the organisation.

Every business will develop differently according to their own particular circumstances, but looking back at some of the startups I’ve been involved with, both as an investor and as an operator, the early stage journey can be split into 3 distinct phases:

• Phase 1, when individuals working solo in their functional areas start to become teams;
• Phase 2, when you first start to use processes and structure to help build consistency across the business;
• Phase 3, when your leadership team emerges.

Through each phase you progressively increase headcount and the business becomes more complex, starting with your founding team and building to the point where you now have an established leadership team. Over the course of this series, I hope to demonstrate how balancing the level of people and process management you can enable the business to transition through each stage of growth.

In this post, I focus on the first phase of this 3-phase journey, where you begin to add new hires around your core founding team and people who used to work solo in their functional area start to become teams.

How do you maintain alignment in a rapidly growing business?

Building a business can often feel like you’re driving at breakneck speed up a mountain while still figuring out where to lay the road. You’re growing so quickly and having to constantly iterate yesterday’s assumptions, how do you make sure everyone who’s joined you on the journey understands what is expected of them at each turn in the road? Reflecting on the past few years as COO of a tech startup called Seenit, whether in our own business or our FTSE 100 customers, I’ve recognised that this problem endures regardless of the stage of growth you’re in. In this post, I outline 5 simple steps you can take to keep everyone in the business aligned.

The BBC’s role in community-driven storytelling

Many of the far-reaching ideas proposed by the Culture Secretary may not have made it into the BBC White Paper, but the coming Charter period marks a moment of change for an organisation that needs to reestablish its role as a champion of wider public interests.

Power shifting once more to aggregators in their duel with news publishers

On Wednesday, Recode.net published a story suggesting Twitter is in talks to acquire the news aggregator app Flipboard. The article cites Flipboard’s stagnant growth and Twitter’s inability to satisfy the continual cycle of product innovation demanded by Wall Street as the key drivers for the move. On the face of it this sounds like good news for consumers – a proven product development team, compelling content, a personalised user experience and deep analytics to drive relevant advertising. But as yet another aggregator looms on the horizon, publishers will be wary that their control of the reading experience may once again be slipping away.

Bootstrapping your way into (or beyond) a £250k to £1m funding round

On Wednesday I was invited to mentor 66 startups that have been shortlisted by the London Co-Investment Fund (LCIF) as their top candidates looking to raise rounds of between £250k and £1m. A room full of eager-eyed entrepreneurs who have built good products and are supported by strong teams, and now need that next boost of capital to set them on their journey to commercial success. All of them have the same problem: unanimously the question they all asked was, “where do I find investors who will invest in my round?” (and more acutely in the lower range of £250-500k)

The market for bridge and seed-extension rounds has always been tough. Startups get caught between not having enough proof points to qualify for VC investment, but having built a team and operating model whose burn rate requires 6-figure investment to keep going. But is it getting worse?

Where is the next shift in the Internet coming from?

I’ve been introduced to a blog written by Benedict Evans who works at Andreessen Horowitz. And in particular I’ve been reflecting on a recent piece he wrote about the next phase of the mobile internet. Here’s the link: http://ben-evans.com/benedictevans/2014/11/20/time-for-new-questions-in-mobile

It’s a thought-provoking piece which starts to open some doors to where the next phase of the development online is coming from.