BLOG POST # 5 (How to Avoid) Firing Your Venture Capitalist

Sometimes raising money is like the dog chasing the bus. When he catches it, he doesn’t really like it or know what to do with it.

A friend of mine had an experience like that and ended up having to fire her venture investors. It was difficult, and expensive. Better not be there.

Here are some lessons she learned that I would like to pass on to you.

1. Broken Trust Doesn’t Mend

My friend found out that her investors had also invested in her competitor. They had never disclosed this to her; not when she pitched them, not when they wrote up a term sheet, and not when they invested. She discovered this by accident. Like with Humpty Dumpty who fell off the wall, all the kings horses and all the kings men cannot put broken trust together again.

2. A Little Due Diligence Goes a Long Way

Venture firms do extensive due diligence on you. You should return the favor. Check out their portfolio for possible overlap with your company. Ask them before you pitch them whether they have any conflicting investments or are looking at any investment opportunities where there might be a conflict. site down or not . Asked point blank, they will normally tell you; and do your homework in case they don’t.

3. Make Sure Your Independent Board Member Is Independent

Venture investors often recommend so-called independent board members. My friend learned that her independent board member – who could have been really useful when things went off the tracks – was not so independent after all. He was doing other deals with the same venture investor who invested in her competitor. You should look for truly independent board members who are not longtime collaborators with your investor(s). Look for people from the industry who you find yourself and through your network.

4. Think Twice About Venture Capital

My friend ended up buying out her venture investors to be rid of them. This was expensive and left her in a vulnerable situation at a particularly difficult time. It left her with shares when she really needed cash. The silver lining was that with her back to the wall, she got to cash flow positive in less than a year. Make sure venture capital is right for you. See our previous post:

#4 Should You Raise Venture Capital? Three Questions You Should Ask Yourself First