Many of you have heard the analogy that the VC due diligence process is like dating and getting the investment is akin to being married. For all of you in relationships, you also understand that honest and open communication is one of the keys to success. Similarly, the VC and entrepreneur relationship should be built on the same foundation. Trust me, I know when one of my portfolio companies closes a new and important deal because good news always travels fast. However, bad news does not travel so fast. I urge the entrepreneur to share the bad news just as quickly as the good news. Why? If you tell the VC sooner rather than later, we can help. If you have an experienced VC as an investor, you can bet that he has seen the movie before and at the very least can offer advice and words of wisdom to help you in your decision making process. If you wait for the board meeting, it is too late for us to have any impact. Secondly, VCs don’t like surprises. Err on the side of too much communication initially than too little. Sure, we won’t be happy with bad news. We’re even unhappier about bad news when we are told at the 11th hour with no ability to influence the decision. You can tell alot about your VC by his demeanor when confronted with tough and unexpected negative situations. In fact, in your investment process, ask yourself this question, “When things are going bad, is he going to roll up his sleeves and help or simply yell and bark orders.” As Clint Eastwood said in the movie The Good, The Bad, and The Ugly, “There are two kinds of people in this world. Those with loaded guns and those who dig. You dig.” Hopefully, you won’t have the VC with the loaded gun, but rather the one who will pull out a shovel and help.
Published by Ed Sim
