Startups are a lot like living children and they need continuous nurturing from a constant and consistent group of supporters to be successful.

The more I invest, one of the great problems I see is that startups and their founders are constantly having to deal with changing influencers on the company's direction as they grow. Each new evolutionary tier often brings an entirely new slate of supporters, priorities, and direction.

A critical, and problematic, manifestation of this issue is that funding is often layered in silos - Seed Angels, Series A Early-Stage VCs, Series B Growth VCs, and Late Stage Private Equity Funders for example - and each of them can radically change the direction of the company when they begin influencing the leadership, whether or not such a change in direction is warranted.

In fact, it's become quite clear - both from general venture statistics and in my own portfolio - that strategic continuity is an essential ingredient in startup success. Capable founders who maintain relationships with early allies of the company capable of remaining helpfully relevant, and develop those relationships further over multiple cycles, typically have a much more coherent strategy for growing into a successful business.

Because a plan for growing an actual business is the essential - and often neglected - ingredient in building to successful exits, this becomes highly important to seeing startups through to the finish line.

There are many examples of this, though perhaps one of the most important can be the introduction of the VC exit philosophy onto a startup time table. I have seen this scenario time and again in the marketplace: a founding team is executing well on a core plan to building the business, steadily growing traction and improving product, they receive a huge influx of cash from a VC firm near the end of its investment cycle with a three to five year short time horizon to exit, and all of a sudden the strategy changes to go "Go, go!" for an acquirer. More often than not this cheapens the visionary aspiration, the product itself, and consequently leads to significant talent departure, ultimately reducing the value of the exit and the change the startup was created to catalyze.

One way to combat this, which I have been working on with my own investment syndicates Gaingels and Blue Jay, is to build investment firms and networks that adhere more to being an ecosystem than an investment apparatus.

In our case, by adding motivated investor-members to help with strategic relationships, mentoring in specific areas, and new markets access while funding at multiple stages from pre-seed through Series A (and beyond with partners from among the membership), we help portfolio companies develop and execute on a core strategy over the first several years of their existence. This helps them stick to that strategy even if they come under pressure from future, more institutional funding sources; adjusting it of course to meet new realities of growth and the marketplace but not lurching from one strategy to the next.

Published on: Dec 20, 2016
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