One thing that constantly surprises me is that maybe 80% of venture-backed founders I know don’t know where they stand with their investors.
The bottom line is every professional VC firm and investing entity divides its investments up into 3.5Â categories:
- Super Green Light.  You want to buy every possible share, period.  See, e.g. Sequoia in WhatsApp. When you want to increase their ownership, and/or do “Super Pro-Rata” (invest more than your % ownership share) in the next round.
- Green Light. Â You are happy. Â You want to own more. Â You definitely don’t want to own less.
- Yellow Light. Â You are worried. Â Company is doing OK, but not crushing it. Â It’s not clear it’s a winner. Â You want to be careful about investing further.
- Red Light. Â You are out. Â You believe your investment is a loss. Â Send the associate to the board meetings. Â Do not invest anymore, period, except in certain game-theory situations (total wash-out, pay-to-play, etc.).
If you are cash-flow positive, or have 24+ months of runway, if you want — you can ignore all this if you want.
But if you are going to need more money at any time in the remotely near future, first, you need to know:
- Will my existing investors invest more — period? Â How much?
- Will they invest more than their “pro rata” (Super Pro Rata), their pro rata — or less?
- Will my existing investors bridge me if I need more money, and there isn’t a new lead?
- Will my existing investors make intros for the next round? Â Who are these intros?
Folks.  If you don’t know. Just ask.  It is OK.  It really is.
Go around the room each board meeting. Â At the end of the meeting. Â Put everyone on the spot. Â Have a slightly awkward discussion. Â It’s OK. Â It’s much better to know.
Ask how you are doing overall, 1-10. And ask about their appetite to invest more.
Putting your investors on the spot like this may sound unusual. Â But I think if you do, you’ll get an honest answer. Â Maybe even a more honest answer than if you ask 1-on-1.
And don’t ask 3-6 months before you are out of money. Â Ask every board meeting if you want. Â Definitely, start asking when you have 12 months of runway left. Â Don’t wait.
You need to know. Â You are CEO. Â Your job is to keep the engine fed.
Most CEOs are too optimistic. Â They think their investor NPS is higher than it is.
When I make an investment where I want to own more, you’ll know it. Â I’ll be asking.
(note: an updated SaaStr Classic post)