Tongue Tied: Speaking Candidly About Capital
I cringe when I read a headline that says a startup “pulled in”, “landed” or even “scooped ” new funding. Or better yet, when a venture capital firm is described as having “placed a bet”, “made a bet” or “cut a check” for a startup.
These various accounts of winning money and placing bets are oftentimes used by reporters and news outlets to drive readers to click on their headlines. But they couldn’t be more askew.
This is not just one man’s point of view. Rather it’s constructive criticism shared amongst venture capitalists and other companies similar to ours. Whether I’m browsing The Wall Street Journal Venture Capital Dispatch in the morning or diving into Nick Frost’s curated dispatches in the evening, I’m oftentimes baffled by language used to characterize what we do on a daily basis.
Ask an entrepreneur after they’ve just sold off a substantial stake of their business in exchange for capital and see if they feel like they’ve just “won” something. Life-changing decisions like raising institutional money can bring heightened pressure to perform and a sharpened focus to scale.
Ask a VC after they’ve just gone through their due diligence process and presented an opportunity to their financing committee if they felt a similar rush as they would putting chips down on black at the roulette table.
Odds are the answers you’d get from both parties would be a resounding “no” (and if the VC said yes, then I predict they won’t be in the business for very long).
At Safeguard, we take pride in our thorough due diligence process.
We analyze each companies’ code base to ensure the soundness of a software product, while listening to developers describe various applications. Value is further added when our legal support team evaluates the legitimacy of customer contracts and we help sales reps fine-tune their elevator pitches to prospects. It’s more than meeting the entrepreneur/CEO and management team. It’s embracing company champions who serve as the lifeblood of the organization. We listen, observe, and advise, whether it’s big picture forecasting models or employee benefit packages. There’s no rubber stamp timeline for this tried and true procedure, but upfront diligence can often take six months to complete.
Is this conventional? Maybe. But it’s as steady and consistent as an annual holiday contribution from a loyal grandparent.
Any equity reallocation should be viewed with the exact same lens as bringing on any other business partner, whether from the capital providers or the entrepreneur’s perspective. We certainly feel that way at Safeguard and we think that the companies in which we deploy capital do too.
Our relationships are partnerships – there’s no ‘portfolio’ at Safeguard (check out our 30 current partner companies). In addition to our deal team members, the Safeguard platform includes accounting/finance, marketing, operations and technology support. When we make a decision, it’s a pledge to the founder/entrepreneur/CEO and his/her extended team, which is why we primarily ‘lead’ rounds for startups. This built-in confidence stems from our methodology – something far-removed from a gamble.
So, let’s drop language that can undermine our industry, because while bets are made in a day, financing relationships are determined in months and years.
*Update* (January 27, 2017): In response to this post, which went live on Jan. 11, Technical.ly Philly published a thoughtful commentary on the current state of the media landscape. Here’s more from Roberto Torres – “How we made this investor cringe over and over again” (Jan. 16).
This post was written by David Luk