The Long Engagement

August 22, 2019

One of our most-read posts here at NVSE is The Fate of Control (December 2009).  In it we cite a phrase coined by Fred Wilson’s at AVC – “shtick tolerance” – as a key to any successful long term relationship.  As we blogged in that decade-ago December:

You don’t have to accept everything about your partner – outside of integrity/honesty – but you must be able to more or less tune some things out over the long haul.  You’re patient with their shtick because they’re patient with yours.  It’s hard work.

Fred is back with another outstanding post, once again on the subject of long term relationships. Here’s an excerpt from The Long Engagement:

What I would prefer to see, and do see in many cases, is a founder who takes the time while they are not raising money to build a number of relationships with potential investors and then engages those investors in a process when it is time to raise capital. I like to call this process the “long engagement”.

It might sound like a lot more work than the fast and furious fundraising process that many founders are running these days.

But I don’t think it is a lot more work. Building relationships over a six to twelve month period can take the form of an occasional face to face meeting, emails back and forth, and even a few visits to the office by the investor. And none of that has to have the pressure of a pitch, an ask, and a price.

We think Fred is spot on. In most cases our relationship with an entrepreneur starts early – months or even years in advance of an investment. Ideally everyone involved has sufficient time and opportunity to explore the fit and potential of the chemistry that will prove crucial to success. Here’s how we put it in a March 2013 post, Due diligence: mine, yours, and ours:

Entrepreneurs who are raising growth capital (i.e. bringing on a long term partner) as opposed to selling their businesses (i.e. get the best valuation) should invest a lot of time conducting due diligence on their prospective financial partner. A credible partner will let you (indeed, encourage you) to talk to as many of their previous entrepreneur partners as you want to get a feel for what they are like to work with.

Entrepreneurs should ask for references from successful investments, unsuccessful investments and current investments. Ask for the venture firm’s entire list of previous and current investments and randomly call a number of them. Find some independent sources on your own who weren’t provided as references but know the venture firm…

Establish a solid foundation for the relationship early: Will you share the same vision? Agree on ground rules?

Once the honeymoon is over, will you collectively put forth the constant effort required to sustain the relationship? How will you resolve conflict? Are communications open and largely free of clashing egos? Does the quality of the arguments make the outcomes better?

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