INSUBCONTINENT EXCLUSIVE:
Mona Bijoor is a partner at King Circle Capital LLC, where she is currently focused on the consumer retail, health and wellness
Mona is the founder of JOOR, an online global marketplace for wholesale buying that directly connects brands and retailers.
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this contributorIn 2014, it seemed like pretty much anyone with a pulse and pitch deck was capable of raising huge amounts of capital from
prestigious venture capital firms at sky-high valuations
Here we are four years later and times have changed
VCs inked a little more than 3,100 deals in the last quarter of 2017, according to Crunchbase — about 500 fewer than the previous
quarter.For aspiring startup founders, it’s a “confusing time in the so-called Unicorn story,” as Erin Griffith put it in a column
last May — an asset bubble that never really popped, but which at the very least is deflating
In the confirmation hearing for new SEC Chairman Jay Clayton, lawmakers lamented the dearth of initial public offerings as companies that
thrived in private markets — from Snap to Blue Apron — have struggled to deliver meaningful returns to investors.This all creates a
number of dilemmas for founders looking to raise capital and scale businesses in 2018
VCs remain an integral part of the innovation ecosystem
But what happens when the changing dynamics of financial markets collide with VCs’ expectations regarding growth VCs may not always be
aligned with founders and companies in this new environment
A recent study commissioned by Eric Paley at Founder Collective found that by pressuring companies to scale prematurely, venture capitalists
are indirectly responsible for more startup deaths than founder infighting, technical debt and slow customer adoption — combined.The new
landscape requires that founders in particular be judicious in the way they seek out new sources of capital, structure cap tables and
ownership and the types of concessions made to their new backers in exchange for that much-needed cash
Here are three ways founders can ensure they’re looking out for what’s best for their companies — and themselves — in the long
run.Take time to backchannelVenture capitalists are arguably in the business of due diligence
Before they sign the dotted line, they can be expected to call your competitors, your customers, your former employers, your business school
classmates — they will ask everyone and their mother about you.
It goes without saying that differences of opinion regarding your
business strategy can lead to big conflict down the road. A first-time founder is also new to the pressures of entrepreneurship, of
having employees rely on you for their livelihoods
Whether you are desperate for cash because you need to make payroll, or you’re anxious for the validation of a headline-worthy investment,
few founders take the time to properly backchannel their investors
Until you can say you’ve done due diligence of your own, your opinion of your VCs is going to be based on the size of their fund, the
deals they’ve done or the press they’ve gotten
In short, it will likely be based on what they’ve done right.On the other hand, you likely don’t know anything about the actual partner
that will join your board
Are they intelligent in your space Do they have a meaningful network Or do they just know a few headhunters Are they value creators What is
their political standing in their firm Before you sign a term sheet, you need to take the time to contextualize the profile of the person
who is taking a board seat
It gives you foresight on the actions your investment partner will likely take down the road.Think beyond your first raiseIf you do decide
to raise capital, make sure you are in alignment with your board regarding your business plan, the pursuit of profit at the expense of
revenue growth, or vice versa, and how it will steer your decision making as the market changes
It goes without saying that differences of opinion regarding your business strategy can lead to big conflict down the road.As you think
about these trade-offs, remember that as an entrepreneur, your obligation is to the existing shareholders: the employees and you
As the pack of potential unicorns has thinned, VCs in particular have turned to unconventional deal structures, like the use of common and
For the founder who needs to raise cash, a dual ownership structure seems like a fair compromise to make, but remember that it may be at the
expense of your employees’ option pool
The interests of preferred and common shareholders are not perfectly aligned, particularly when it comes time to make difficult decisions in
the future.Is VC money right for youVCs frequently share information, board decks and investor presentations with members of the press and
the tech community, sometimes in support of their own personal agendas or to get perspective on whether to invest or not
That’s why it’s particularly important to backchannel, and more importantly, that you have allies that you can call on and people who
can ensure some measure of goodwill
A good company board cannot be made up of just the investors and you: You need advocates that are balanced and on your side.
Venture
capital is far from the only way to finance an early-stage business. These prescriptions can sound paranoid, particularly to the founder
whose business is growing nicely
But anything can cause a sea change and put you at odds with the people funding your company — who now own a piece of the company that
When disagreements arise, it can get tense
They might say that you are a first-time founder, and therefore a novice
They will make your weaknesses known and say you’ll never be able to raise again if you ignore their invaluable advice
It’s important that you don’t fall into the fear trap
If you create a product or service that solves an undeniable problem, the money will come — and you will get funded again.The term
founder-friendly VC was always perhaps a bit of a misnomer
The people building the business and the people planning on cashing in on your efforts are imperfect allies
As a founder and business owner, your primary responsibilities are to your clients, to the company you’re building and, most importantly,
to the employees who are helping you do it
As founders we like to think that we have all the answers, especially in bad times
Making sure you have alignment with your investors in challenging and unpredictable situations is critical
It’s important to anticipate how your investors will problem-solve before you give up control.Venture capital is far from the only way to
finance an early-stage business
Founders looking to jump-start their business have a number of alternatives, from debt financing and bootstrapping to crowdfunding, angel
There are indeed still many advantages to having experienced investors on your side, not simply the cash but also the access to hiring and
But the relationship can only benefit both parties when founders go in eyes wide open.
