Speaking at the Startup Capitals conference in Singapore this afternoon on a panel discussing the ‘Funding fundamentals: Bootstrapping or venture funding’, Jeffrey Paine, a Co-founder at Golden Gate Ventures, highlighted the intimate relationship between VCs and their portfolio startups.
Also participating on the panel were Joseph Ziegler, Entrepreneur-in-Residence at startup accelerator Muru-D Singapore and Srividya Maliwal, Chief Producer at Playware Studios Asia.
Paine was actually speaking in his capacity as Head of the Founder Institute Singapore, though Golden Gate itself is still very active, having just raised its second fund of US$50 million.
A window into the founder-VC relationship
“We are there to help, we are there to build trust. I’m not surprised when my WhatsApp starts blinking at 3AM. This is very common, I get it a few times a week,” Paine says. The private messages he receives are on a range of headache issues that startup founders face, often keeping them up through the night with a degree of insomnia.
“They will ping me with different comments, [like] ‘I’m going to fire this guy and I don’t know what to do’. All this stuff that you won’t hear, to me it’s very common… talking to the founders at 4AM is very common,” he says.
The comments highlight the intimate relationship between VCs and their portfolio companies, and suggest why taking VC funding from a reputable firm with expertise is often one of the most important decisions on a startup’s journey. Get the wrong advice in your weakest moments and it can do intangible amounts of damage.
“We have a formal channel on Slack where all the CEOs of our portfolio companies can speak to each other on deals, recruiting, finance and all that sort of stuff,” Paine says, but adds that most of the WhatsApp messages he receives in the small hours of the morning are on issues that are too private for those somewhat more public Slack channels.
Ironically, the Slack Co-founder Stewart Butterfield recently said, “It’s hard to overestimate how much the… quality of the VC firm you’re with matters.”
Most startups should not be taking VC money — says the VC
Honing in on Asia, many of the startups coming out of the region are still “clones” — replicating business models from elsewhere and localising — that need to be able to defend aggressively and expand quickly in order to not be supplanted by competition. This, Paine argues, is one situation where VC money can really come in handy as opposed to bootstrapping.
But he also has some persuasive arguments as to why most startups should not take VC money at all; in fact, only two-three per cent should. This is before you get to the fact that most, even if they do want to raise, will never be successful in doing so anyway.
“The moment you raise money you are no longer the boss… that changes many things in what your perception of running your own business is. I always tell people that the best businesses in the world, at least for me, are… [ones] that don’t take a dime from anyone. I can take two or three weeks off because I’m the boss,” he says.
Going to war together
Adding further comment to the importance of the founder/VC relationship, Ziegler, who last month was part of a US$134 million exit from data analytics startup Iris Data Services that had received substantial VC backing, described the experience as akin to going to war together.
“I think it works on several levels. This isn’t a one time relationship with the VC or founder. [Iris Data Services] was my second startup with that VC and CEO, and my second big startup. We are all connected, you go through war together, including the VC,” Ziegler told e27 after the panel discussion.
“Then you get together again and go to war another time. After you lick your wounds and recover (hopefully with some money). You want a VC like that because it’s not a one time thing. It’s a cycle,” he adds.
There is clearly a time and a place for bootstrapping, and in fact in most scenarios (97 per cent) this will be the only way forward because raising VC funding is not possible, or you simply don’t want to give away the equity — or be accountable to shareholders.
But if you do need and manage to raise VC funding, think of it as a war. And if you’re with a VC that isn’t there to check your desperate WhatsApp messages at 3AM when your world is falling apart (or seems to be), then perhaps you had better reassess that relationship — because it may just be the most important one your startup will ever have. I’m sure Paine would agree.