Editor’s note: Joe Procopio is the Chief Product Officer at Growers and the founder of teachingstartup.com. Joe has a long entrepreneurial history in the Triangle that includes Automated Insights, ExitEvent, and Intrepid Media. His columns are a regular part of WRAL TechWire’s Startup Monday package.
RESEARCH TRIANGLE PARK – In an issue of my Q&A newsletter, Teaching Startup, I gave some advice to a second-time entrepreneur about accepting venture capital funding that would ultimately put his product on a different path than the one he believes will make his startup a billion-dollar company.
While I was answering the question and laying out some negotiation options, I noted that this scenario was not unusual. Far from it, in fact, I’m hearing this more and more from entrepreneurs who are seeking outside funding.
My advice was cautionary. And while this was a couple years ago, it turns out to be even more cautionary advice today than it was then.
I don’t think we realize how much investor expectations have ratcheted up over the last several years..
In this post, I want to talk about those expectations, why it’s important to understand them, and how to negotiate them.
There’s Always a Catch
Well, for sure, there are always several catches when it comes to accepting outside investment for your startup, but there’s one I see more often than the others and it’s usually the most problematic.
Here’s what I wrote in the middle of the answer:
“I can tell you this. With the exception of repeat founders who already have credibility that they know what the market wants, this is how most VC deals work. There are outliers of course, and no VC will tell you that they want five years worth of progress for one year of funding, but then you’ll get three or six months into the deal and realize that’s exactly what they want. You’re just realizing it early.”
It’s happened to me. It’s happened to me at the seed stage, at Series A, at acquisition, at private equity infusion — the entire lifecycle of funding. The vision I believed was being invested into was not exactly the vision the investors believed they were investing into. Over time, that crack in expectations turned into a schism and then a chasm.
Look, I’m not trying to paint investors in a bad light. Far from it. Chances are, your average experienced venture capital investor knows more about how well your product will perform in the market than you do. What I am trying to warn you about is this:
You Have a Vision
Every entrepreneur starts their journey from idea to exit with a vision. I’m not talking about dreams and wishes, I’m talking about your plan, and moreover, a plan that was bulletproof enough for you to pour your valuable time, effort, and money into your vision.
They Have a Vision
And while a good VC should be cognizant of your vision, their version of it likely involves a more concrete and quicker return on whatever time, effort, and money goes into that vision.
Those Two Visions Must Be Aligned
And in the beginning, they won’t be. And furthermore, you won’t know that.
Early on in the life of a startup, it’s tough to be able to properly communicate the long-term, billion-dollar company vision. This is especially true when you’re doing something no one has ever done before, with so many unknowns, variables, and outliers waiting to be sprung on you.
Furthermore, the investor has spent a couple weeks, maybe a few months, immersed in your vision. How could they possibly understand the extent and fullness of that vision?
YOU Have To Make That Alignment Happen Not them
One of the things we entrepreneurs often don’t fully grasp is that the success or the failure of our venture is completely and totally on us. That means the legitimacy of the idea, the elegance of the solution, the translation of that solution to product and company, and the transition of that product to the market — all of this is your responsibility.
Investors don’t invest in a company and then take the wheel. They’re just paying for the ride. But that fare comes with plenty of backseat driving, second-guessing, and even wholesale changes in the destination and how to get there.
It’s up to you to decide when they’re right, when they’re wrong, and how to act when either is true.
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