Continuous Financing

Chris Dixon has a good post up called The Downside Of Accelerated Investment Decisions in which he talks about "shotgun weddings" and why they are often bad decisions for both entrepreneurs and investors. I could not agree more with Chris. We hate financings that go down like this and often choose to sit them out.

I believe that entrepreneurs and investors should be engaged in a non-stop dating process that starts as early as possible and goes on continuously regardless if the entrepreneur is actually in the market for capital or not.

Mark Suster wrote a seminal post called Invest In Lines, Not Dots in which he said:

We want to make sure we’re in love.  This sometimes frustrates entrepreneurs who just want to “get back to running the business.”  But if you understand it you’ll see that it is perfectly rational and it should also influence how you form relationships with investors.  And remember, if we get married you’re stuck with us, too.

The perfect entrepreneur/VC relationship is one where each has established respect and trust with the other well before an investment transaction is broached. When an entrepreneur we know well, like, trust, and want to be in business with walks into our office looking for some capital, we almost always say yes, and we say yes quickly and on reasonable and fair terms.

This is why VCs can't just sit in their offices reading business plans and taking pitch meetings. They need to be out in the market meeting entrepreneurs super early, breaking bread with them, watching them in action, and learning about them, their products, and their visions.

This is why entrepreneurs can't ignore VCs until they are ready to raise capital. They need to hang out with them, get to know them, find out who they like and who they don't, and figure out who they want to be in the boat with when it's taking on a lot of water and things don't look so good.

I've said many times on this blog that the entrepreneur/VC relationship is a lot like a marriage. You date, you get engaged, you get married, and you hope you don't get divorced because only one of you gets to keep the kids. Don't do shotgun marriages. They are a bad idea.