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Three Things Seed Stage Founders Need Most from VCs

Three Things Seed Stage Founders Need Most from VCs

UNUSUAL
Portfolio
7
 MIN READ
August 14, 2019
Editor's note: 

I crack up every time I catch one of these AT&T commercials where people question their choice in surgeons, tattoo artists, or my favorite — carnival rides. The punchline is “Just OK is Not OK” and it’s funny because it’s true. In critical situations — when the stakes are highest — anyone with common sense wants to be sure they’re getting the best service. When we don’t, and the end result is permanent, we usually regret it. Case in point — I probably should have considered professional alternatives before letting my friend pierce my ear Sophomore year of high school; now my kids love to laugh at my scar. For founders and entrepreneurs picking their initial investment partner, it shouldn’t be any different.

When Benchmark founder and Wealthfront CEO, Andy Rachleff, speaks to our founders and Unusual Academy participants, he always makes a point that hits home with me. Venture capital is like any other profession. From dentists to lawyers to teachers, there’s a normal distribution where the top 1% are three standard deviations away from the mean in terms of delivering better service. That’s especially true for venture today, with an ever increasing number of firms cropping up and racing to deploy record amounts of capital. The fact is you wouldn’t settle for average when picking a surgeon or a tattoo artist (or piercing professional for that matter). So why would you do any different when picking your investor, who you could potentially be working with for the next 10 years?

Simply put, entrepreneurs should expect nothing short of excellence from their venture capital partners.

Image Credit: Business Insider

As I’ve mentioned before, I’ve been fortunate to have Andy Rachleff as a mentor since 2004. And my Partner at Unusual, Andy Johns, worked with Andy Rachleff for five years at Wealthfront. So much of what we do and how we engage with entrepreneurs at Unusual stems from his teaching. But that also means we feel immense pressure (read sleepless nights) to live up to our lofty goal of being the premier early stage partners for founders.

My Partner and Co-founder Jyoti Bansal previously wrote about how to choose the right VC and mentioned the importance of seeking Tier 1 firms. But what exactly does that look like? When we started Unusual 18 months ago, we thought very hard about what we needed to do be a firm founders consider to be in that top 1%. We knew it would take years to get there, and that we had to be unique compared to our competition.

Another “Andy-ism” that he drilled into us was that the challengers in any market can’t just replicate what the champions are doing. I can hear him now saying, “You have to change the rules of the game to win.” We felt it was important to have the right guiding principles from day one, so we were very intentional about picking what we would do to be exceptional for the founders we were fortunate enough to work with. For us, we believe delivering excellent service in VC has three core components:

1. Focus enables excellence

In our experience, we’ve found that the only way to be truly exceptional at anything is to focus and specialize. That’s why we set the goal at Unusual to be the best partners for founders at the seed stage and have tailored our support accordingly. It’s our sole focus and what we rage to master every day. Our belief is that a startup is only in one of two states: Pre-Product Market Fit and Post-Product Market Fit. Everything else is a variant of one of those fundamental modes and clarity about finding an investor for the right stage is essential because each stage’s priorities are so different.

Pre-Product Market Fit requires a laser-focus from every team member to discover the minimum sellable product in that market sweet spot where users/customers are truly desperate for what your solution offers. It’s all hands on deck to answer the only question that matters: “What do we do uniquely that these customers are desperate for?” Conversely, Post-Product Market Fit is all about scaling. It’s day and night.

Raising the right amount of money and selecting the best, stage-appropriate investors are two of the most critical decisions an entrepreneur can make to determine the ultimate outcome for their business. To that end, the one question that entrepreneurs should care about most is whether a particular VC is ready, willing, and able to help them succeed at their particular stage of growth.

2. Hands-on support makes all the difference

The second thing we committed to do was build out hands-on services for our founders rather than just give them advice. That’s the reason Jyoti designed our Get Ahead Platform (GAP) based on his own experience founding AppDynamics and Harness, and the specific support he desperately needed from his investors at the time, specifically around hiring, marketing, and sales.

When you run a startup, your purpose is to take the vision you have of your product and bring it to life. We created a service where we could become an extension of a founder’s team and take on the other components around it — recruiting technical talent, selling the first customers, and creating clarity on your value proposition and go-to-market strategy — so you can focus on getting your product out the door and making sure it’s successful. Whenever possible, seed stage founders should look for VCs that are willing to get down in the trenches with them and offer help beyond advice.

We are only 18 months into our Unusual journey, but we are already seeing very positive signs. Through our GAP engagement, we’ve repeatedly doubled or tripled the headcount of portfolio companies, helped them nail down their go-to-market messaging, and walked them through securing their first half-dozen customer wins. That early success is critical for building initial momentum and providing a North Star for the team moving forward.

3. VCs can become trusted coaches for their entrepreneurs

Stage-specific specialization and hands-on support are two tangible things to look for when choosing a VC, but there’s a third quality that’s harder to gauge and perhaps the most important: whether or not your VC will be the trusted coach you can depend on when the going gets tough. We know it takes guts to start a company. Being a founder means navigating uncertainty and going up against daunting odds every day. That’s why it’s critical for an entrepreneur to partner with VCs who will have their back and earn the right to coach them through the challenges of starting a company.

I recently read Trillion Dollar Coach, a profile on legendary Silicon Valley coach Bill Campbell who I was fortunate enough to know, and it really struck a chord with me. Bill was dedicated to helping entrepreneurs become the best version of themselves through honesty and a bit of tough love. The book points out that “a coach is someone who tells you what you don’t want to hear, who has you see what you don’t want to see, so you can be who you have always known you could be.” This approach of being both supporting and demanding resonated so much with me because that’s exactly what we aspire to provide for our founders.

Adam Grant, who leads our Academy session on leadership, calls it being a “disagreeable giver” and explains that it’s the same false dichotomy that exists in parenting. You want to hold high standards and expectations, while giving the encouragement necessary to reach them. The best VCs I’ve seen truly embody this coaching mentality and operate with their founders’ best interests at heart. It’s rare to find this mindset in venture capital partners, but it’s what we aspire to every day. At the same time, we also appreciate that this style isn’t for everyone.

One thing I’ve learned to ask founders before we seriously consider investing is, “Are you coachable?”

The truth is a founder feels compelled to go on a hero’s journey, complete with all of the trials it involves, and the most difficult leg of that journey is the first two-year stretch. We love and respect founders for this because we believe it’s the path to progress and a deeper life! It’s our goal to be that uniquely helpful partner who is part guide and part coach, so they can conquer those early obstacles and emerge victorious.

We started Unusual in part because we think entrepreneurs deserve the best. They deserve investors who are focused on helping them at their specific stage and hands-on with the support they offer. They deserve coaches they can trust to operate with integrity and their best interests as their highest priority, even if that means giving a bit of tough love sometimes. We’re early on our journey and trying some Unusual things. We have a long way to go to fulfill our lofty aspirations, but we’re seeing some positive signs. It’s our goal to raise the bar for the industry as a whole and make “our Unusual the new usual.” That way founders can stop settling for just OK and get the support and encouragement they’ve always deserved.

Follow Unusual on Twitter for the latest updates on ways we can partner to create a new usual

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