You Need to Know Where You Stand With Your Investors. Your Investor NPS.
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.
- Super Green Light. ¬†You want to buy every possible share, period. ¬†See, e.g. Sequoia in WhatsApp.
- Green Light. ¬†You are happy. ¬†You want to own more. ¬†You definitely don’t want to own less.
- Yellow Light. ¬†You are worried. ¬†Company is doing OK, but not crushing it. ¬†It’s not clear it’s a winner. ¬†You want to be careful about investing further.
- Red Light. ¬†You are out. ¬†You believe your investment is a loss. ¬†Send the associate to the board meetings. ¬†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.
But if you are going to need more money, first, you need to know:
- Will my existing investors invest more — period? ¬†How much?
- Will they invest more than their “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? ¬†Who are these intros?
Folks. ¬†If you don’t know. ¬†Ask. ¬†It is OK. ¬†It really is.
Go around the room each board meeting. ¬†At the end of the meeting. ¬†Put everyone on the spot. ¬†Have a slightly awkward discussion. ¬†It’s OK. ¬†It’s much better to know.
Putting your investors on the spot like this may sound unusual. ¬†But I think if you do, you’ll get an honest answer. ¬†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. ¬†Ask every board meeting if you want. ¬†Definitely, start asking when you have 12 months of runway left. ¬†Don’t wait.
You need to know. ¬†You are CEO. ¬† Your job is to keep the engine fed.
Most CEOs are too optimistic. ¬†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. ¬†I’ll be asking.