Growing Business, Growth Clinic
Sam Richardson, director of Curzon Park Capital
March 2009

Q. Last year my technology company successfully attracted the interest of more than one venture capital company. We selected one on the basis that they were prepared to allow us to move quickly in an early stage market that we believe will see good growth but will soon attract competitors as start up costs are not exorbitant. For us, staying one step ahead of the game is essential. However, our VC backers are now dragging their heels on strategic growth and are not as engaged with the company as we would like. How can I get them to engage more and back our plans for faster growth?

A. Entrepreneurs, once they have secured the holy grail of a VC funder into their business often then fall into the trap of thinking their fundraising challenges are now a thing of the past. If your business is not cash positive, like the majority that seek VC funding, then you mustn’t assume that when you next run out of cash it is your VC’s responsibility or obligation to continue to fund your business. Each cash call will be viewed by a venture investor (and more importantly their internal investment committee) as a separate funding decision that will need to be justified as diligently as the initial funding into the company. You say that during your initial courtship your VC intimated they would fund your growth into an early stage market. You need to analyse whether you have really delivered against your original business plan which was the basis for your funding. In most cases things cost more and take longer but management teams expect institutional investors to follow their money provided there is some realistic possibility of a future return. To understand how to retain the interest and support of your VC you must always keep one eye on how any delays to your business plan and additional capital calls will affect the equity return of the venture investor. Despite the genuine enthusiasm they may exhibit, a financial investor is only interested in their return and they will not have the emotional attachment and endurance to fund or engage with a company that is taking too long to commercialise its technology. VCs should never fall in love with a technology and this agnostic approach can often be at odds with the passion a founder management team may have for their product offering. The best way to grab back the attention of your VC in this situation is to take ownership of your future funding and source parallel sources of future investment. By absolving your VC of his funding responsibility for your company you can demonstrate a degree of financial independence and underline that you are going to succeed with, or without his involvement.

Ends


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