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.

#VC & Technology

Comments (Archived):

  1. Julien

    And that’s why _all_ VCs should do Office Hours, like you guys do 🙂

  2. William Mougayar

    True that the hotness of the market can make you forget about the dating aspects in the interest of making the deal happen. But establishing these early relationships is not sufficient. The other stuff has to be there too (product, market fit, traction, people, etc..). But it can be a double edge sword over the long term. We’ve seen cases where the strength of the relationship blinds the thoroughness of the business case diligence, or VCs who “trust” someone will relax their investment criterias, and that can bite them back.

  3. Mathieu Nouzareth

    “only one of you gets to keep the kids” => yep, the one keeping the kids is the distant father who is not living at home, does not know or want to raise kids, who is dating many women at once and who will hire a professional nanny to raise the kids… So the mother who gave birth to the kids, who spent night and day taking care of them and worried sick about them, does not even get to see her kids ever again. (And yes, some mother are bad mother too 🙂

    1. fredwilson

      That’s one way to look at it. I’m sympathetic to that view. But as always its not so simple

  4. Michael Lewkowitz

    Absolutely. Great partnerships take time and endure. That’s part of what makes them great. Each party gets to know the other, through good and bad, which each will inevitably go through. And through it all they make each other greater.What sometimes gets forgotten, or gets taken for granted, particularly in times like these… Investors and employees aren’t resources, they’re relationships. Relationships trump resources over the long-haul. And that’s what matters when you’re building something that matters.

  5. Aaron Klein

    Your role as an entrepreneur is often called “CEO” which of course stands for Cash Extraction Officer.When we’re selling, we intuitively know that it takes planning and preparation to develop a relationship with your customer, understand their needs and help them see the wisdom of handing over their hard earned cash to you in exchange for your product.If you can’t expect to walk into a customer’s office cold and leave with two years worth of revenue in hand, what makes you think you can do it with equity?

    1. johnny rotten

      what are you doing walking into a customer’s office?!?!?!??! Don’t you have a really important three hour car drive ahead wherein you’re going to make all of your key business decisions? fucking tool.

      1. Aaron Klein

        Don’t worry, I called ahead.(Your new moniker is a slight upgrade from anonymous. Well played.)

      2. fredwilson

        Whoa. No name calling here please.

  6. Kasi Viswanathan Agilandam

    Marriage… seriously?  … sure for the entrepreneur but VCs live like “Chief Majak Malok Akot” of Sudan :-).

    1. fredwilson


      1. Fernando Gutierrez


  7. David Miller

    I’ve raised capital and know that you’re likely to work with your investors a lot longer than you probably expect to, so you should spend extra time up-front trying to determine whether you’re compatible.  The last thing you need is an investor around the Board table stirring up dust without having a personal rapport, developed over a period of time, to fall back on.Great practical advice.

  8. GlennKelman

    Fred, this is no doubt the best way to find the right investors, but is finding the right investors really the best use of an entrepreneur’s time? Some entrepreneurs love to sell the company to VCs more than they love building the company. 

    1. Toks Ogun

      If you intend on seeing the company through, it’s necessary. What happens if you have an awesome product with great traction but you need additional capital? A bad investor could block you. It might not make sense why they would want to do that but at that time it’s too late. It really is like a marriage, by the time it’s bad it’s too late.

    2. fredwilson

      Its not an either or. If you need capital its a both

    3. BillSeitz

      Maybe part of it’s automatable. Like taking the tool Steve Blank’s friends are working on for Board communication via the LeanCanvas, and opening it up to potential investors?…

  9. ErikSchwartz

    Not to sound like a suck up to our host or anything but that’s why VC’s should blog and why it’s better if there’s an active community around the blog. 

    1. awaldstein

      Erik…key point.Blogs are our calling cards. Without a rich online footprint all of us are ill equipped.The number of VCs that blog seems very small and the number of communities, a tiny fraction of that. Seems like a lopsided ecosystem and a challenge for both sides. And yes, a huge earned advantage (as there should be) to Fred and a few others who have built community. Really hard to do. 

  10. andyswan

    One of the most disconcerting trends in startupland right now for me isn’t high valuations.  It’s impatience.  High valuations come down or prove themselves out.  There’s no benefit to getting concerned about numbers in a market.But I do have concern for the PEOPLE involved.  I see a ton of entrepreneurs who believe the meteoric rise of twitter, facebook, groupon, etc is the NORMAL WAY to build a business.  They NEED funds yesterday.  They NEED a B round tomorrow.  They NEED 500k users by Christmas.They’re wrong.  What they need is a business model that doesn’t need exponential growth and a ton of infused capital to succeed.  They need to go through the years of sitting down and figuring shit out because they can’t afford to hire someone else to do it.  They need to EARN and BUILD relationships that are built as much on risk and respect as on potential reward.I’ve hit the pay window twice, but it’s the the people that have gone with me and the callouses on my hands and that I cherish the most.Slow down.  Enjoy the ride.  Win.

    1. JLM

      Damn, Swannie, sounds like you been to the rodeo once or twice.People today are building stuff when they should be building companies which produce great stuff in a controlled and predictable environment including knowing their future cash needs.

      1. andyswan

        “People today are building stuff when they should be building companies which produce great stuff “Consider that line borrowed….excellent

      2. ShanaC

        Since I’m right now dealing with this – it is hard to know all your needs in advance.  Like any good marriage, try finding people in advance who can help you find and fill your needs before they get to be troublesome and blow up in your face.

    2. Tom Labus

      Welcome to the world.

    3. fredwilson

      And breathe

    4. Dave W Baldwin

      Well put!

    5. Steven Kane

      amen brother swan.

    6. BillSeitz

      I think the froth in both dimensions is due to the return of the “scale first, then figure out how to make money later” model. That creates the belief that “whoever grows fastest wins” and therefore “whoever has the deepest pockets wins”.If you can get enough OPM to play that lottery for awhile, and don’t mind walking away with nothing after a few years, then that’s a fun ride.

    7. jack

      “There’s no benefit to getting concerned about numbers in a market.”Unless you’re someone who shorts BS markets. (Yeah, I’m looking at you LinkedIn.  You’re going down, mofo.  Down, down, down.)

    8. William Mougayar

      So well said Andy. I wished the 18-34 would listen to that advice. But truthfully, some older VC’s are also responsible for feeding the frenzy because they are handing the kids the drugs.

  11. Jared Cosulich

    Personally I’ve experienced quite a lot of impatience on the investor side. In all of my dealings, even those where the investor really wanted to invest, they seemed to have little to no patience for spending time together without some potential of a deal getting signed as a result of the interaction.I’m sure there are some investors who are an exception, but I have yet to meet them.

    1. JLM

      The whole world is impatient and it is resulting in a bunch of important issues being simply ignored if the success is not immediate.Got to run, I am going to Gitmo to shut it down.

      1. LIAD

        multiple stacked layers of satire in that last sentence. impressive

      2. troygroberg

        Well played.

    2. fredwilson

      Those VCs are pick up artists who specialize in one night stands

  12. JLM

    Ahhh, marriage.You meet a beautiful, beguiling, entrancing and great smelling woman.  Hopefully a lady in the drawing room and a courtesan in the bedroom — but I digress.  Well, make damn sure she is a good kisser.You learn to dance in her arms and calibrate your hearts together with a single beat driving your life.  It is just wonderful.You live through the mystery of having children and life blesses you at every turn.And all it costs you?EVERY PENNY YOU MAKE FOR THE REST OF YOUR LIFE!

    1. Mark Essel

      Ah such a bargain :)ps: never feed the trolls. Eventually they starve and grow bored. Once they have your attention they feel justified in wasting both your times.

  13. EmilSt

    Totally agree. And also like marriages, if they are only about money, they fail sooner or later. Before money VC/entrepreneur marriage should be about knowledge and common ideals, passion, culture, vision, synergy…

  14. Eric Leebow

    Well said Fred. Much better than office hours sometimes is putting yourself out there in the real world.  There are many VCs who don’t attend that many tech events or the coffee meetups etc. and it makes you wonder. You’d like to think and hope they are all very engaged with entrepreneurs years before they step up to the plate and hit the grand slam with their startup, yet that’s not always the case.  It’s interesting to think how the same VCs who use and test out technologies are some of the most informed investors, as they’ve tried products and services.  VCs can see the entrepreneurial endeavors that are genuine effort and thought.  It’s interesting to think about, as some entrepreneurs come up with ideas 10 years before they actually get to doing it or figuring it out, before they even knew VCs exist.  So, think about 10 years of dating with ideas as an entrepreneur.  Some entrepreneurs have so many ideas, they have to stick to one, marry or give birth to the idea as well.

  15. Kenneth Luna

    I like this Fred.  It shows that you guys really consider the human element when it comes to your investments.  Always a breathe of fresh air to read and hear this from people.  Thanks.     

  16. reece

    i had a FIRST meeting with an angel investor recently in which they realized that our round is already closed… their suggestion? take $25k in cash, personally, in exchange for $25k worth of my shares.haha… needless to say i’m passing on the offer.FWIW: this person’s made 21 investments since 2010! funny, i thought you still need a license for a shotgun wedding? 😉

    1. kenberger

      He offered you to “take money off the table”.We really need a better term for this.

      1. reece

        i’m aware of the phrase**

        1. kenberger

          sorry dude, i know u know (and that it wasn’t your point).i *would* like to see a better term for it.

          1. reece

            ha no worries and i tend to agreewhat say you AVC people? do we just agree on TMOTT or can someone come up with something better?and no, “pulling a [Andrew] Mason” won’t do. ;)**

          2. chris dixon

            VCs often call it a secondary investment (or just a “secondary”)

          3. kenberger

            (hmm, I guess disqus only rolls 6 reply indents deep).@cdixon:disqus : yup. I think secondaries related to founders’ equity, and its rise in prominence in the last few years is 1 of the top hugest changes in startup land. It merits topic posts on this blog (maybe you’ve already covered it).

    2. markslater

      Reece – why would you be meeting with an investor if you round is closed?

      1. reece

        the premise of the meeting was not as a pitch/investor meetingbusiness meeting that turned into an investment discussion for a second

        1. markslater


  17. Steven Kane

    Life is not a dress rehearsal. You don’t get it to get it right the second time.

  18. Fdones13


  19. kenberger

    Summary:Shotgun weddings happen due to getting knocked up, resulting in a state of duress.Many of today’s investors and entreps falsely believe they are in a similar situation, and this is madness.PS: The argument of 1-sided Polygamy in the Sudan president comment is an interesting one too!

  20. MartinEdic

    I totally agree with the getting out of the office meme. But I don’t think the majority of investors are doing it based on the absurd investments we read about every day- like a company that tracks cycling data (yes bicycling) raising over $15 million- it sounds like some VCs who like riding pulled out their checkbooks. Honestly, I don’t get it. You could write a Facebook app to do this.I don’t believe we’re in a bubble but I know it is hard to build a real company with actual sustainable revenue and all too often it looks to me like this is not even a consideration for many VCs. Other people’s money?

  21. Esayas Gebremedhin

    “And remember, if we get married you’re stuck with us, too.”I like the marriage metaphor and wonder how many startups get backed up or not because of that imagination…

  22. saranyan

    This is such a great post. But, sometimes the VCs (and even other entrepreneurs) you like and admire are in a different place. In that case, personal engagement is tough, but it is still possible by interacting on blogs and other stuff. Like you said, this is a two way relationship, as an entrepreneur, I feel I want to work with a VC who inspires me and who I look up to. In that sense, it is truly a marriage of some sorts.Thanks for posting.

  23. BradDorchinecz

    Well said Fred. I met with 7-8 VCs this week in Silicon Valley, and while several were worried about valuations continuing to creep up, most were more vocal about their concern with the shrinking amount of time between first meeting and term sheet (which in some instances appears to be less than a week). Sounds like in today’s market, you have to propose after the first date!Brad Feld recently had a post about interviewing, and one of the points was that everyone is on their best behavior in that first interview. You really need to meet with people multiple times before hiring them because their true character will eventually come out. The same obviously applies to investing.

  24. Gregory Magarshak

    Yes! I wholeheartedly agree. In addition to that, some companies try to start getting revenue streams and even (maybe 🙂 becoming a good investment vehicle before looking to raise money.I want to ask some advice, though. I reached out to you a few months ago (when we first got seed funding) and told you about what we’re building. You were interested in seeing a demo, and we spoke about coming in once we’re ready to launch. Since then we’ve been busy using our funding to get our fundamentals nailed down and get traction … we have around 100k users and 25k people use our stuff *daily*…I still want to reach out to you regarding the platform we’re building at but we haven’t got to the point where we’re ready to launch yet. So my question is: how much of an ongoing relationship can there be until then? Meaning, we’re not ready to demo yet, but you probably talk to so many people every week that I am not sure you remember us having talked a few months ago. I definitely think USV is a good fit for what we are doing, and I’d be excited to demo to you in September or so… but I’m just not sure whether it’s better to stay out of touch for a while or send you updates that are great for us, but probably not super exciting for you 🙂

    1. fredwilson

      Great question. A short meeting/call to establish the relationship and communicate the vision is good. But the real interesting stuff happens when you can show a prototype or working code

  25. Eunice Apia

    I think this is my favorite post out of all your blogs from an entrepreneur prospective and you have a lot of great posts. I’m a commitment phobe (I feel comfortable admitting on here which could backfire against me in the future when I come to you for capital), so I want to make sure that whatever investors I end up forming relationships with, I trust and feel comfortable with so I can be flexible and coachable professionally.

  26. Toesan Wen

    I fully agree, like marriage is not only about sex. It’s easy to over-focus on capital when you need it.

  27. Andy Sack

    Another great post! I agree with you. 

  28. Trademark Application

    Here is a similar a story NEW YORK, Aug. 4, 2011 /PRNewswire/ — Sterling Bancorp (NYSE: STL), a financial holding company headquartered in New York City and the parent company of Sterling National Bank, today announced that the Company’s Board of Directors has declared a cash dividend of $0.09 per common share, payable on September 30, 2011 to shareholders of record as of September 15, 2011.

  29. Trademark Application

    Here is a similar a storySterling Bancorp a financial holding company headquartered in New York City and the parent company of Sterling National Bank, today announced that the Company’s Board of Directors has declared a cash dividend of $0.09 per common share, payable on September 30, 2011 to shareholders of record as of September 15, 2011.

  30. Van Hire London

    It is interesting to know about this stuff. This mode of financing plays a crucial role in whole economy. It will put effect in financial structure of enterpreneurs, businessmen, financers etc. Continous Financing will be emerge, as what i think. Thanks for lwtting us know about it.

  31. JLM

    So, you mean other than your wife, mother and sister, n’est-ce pas?Haha, very witty stuff, rube.  High brow really, oui?

  32. JLM

    Hmm, twins?Jerk

  33. JLM

    There is a reason why pussies like you need the anonymity of the internet to screw up their courage to call names to folks you would be afraid to face up to, girlfriend.Scurry along with the other cowardly roaches, sugar. 

  34. JLM

    Sigh, if you weren’t a little scared shitless weasel you wouldn’t need to hide behind your momma’s skirts of anonymity, that much is painfully obvious.Come on over any time for a “chat”, darling.Got to run but enjoyed it, rube.

  35. fredwilson

    We need a better executed version of thefunded. Right idea. Wrong execution

  36. fredwilson

    I deleted all those comments. I tend to allow a lot here but that was gratitous