How Entrepreneurs Can Build and Maintain Successful Venture Capital and Private Equity Relationships

The first three quarters of 2021 have brought ample opportunity for startups and small businesses seeking capital investments. According to a report from PitchBook, overall venture capital funding in the U.S. hit a new record of $238.7 billion raised in the first nine months of the year, crushing the previous annual record of $166.4 billion that was raised in all of 2020. Early-stage capital alone has exceeded $54 billion through Sept. 30, beating last year’s record volume of $44 billion.

With more opportunity, however, comes more competition. Entrepreneurs who have decided to seek venture capital or private equity investment will need to stand out. Strategizing around getting and keeping investor attention early on can help.

Having a Solid Framework to Guide the Organization Can Increase Your Chances

Having a reliable business operating system is one way for entrepreneurs to make a solid first impression. This is a mechanism by which company owners and leaders agree on a shared vision, execute on it with discipline and solve problems as a cohesive team focused on results.

This framework helps companies achieve success much more consistently than businesses without operating systems. Businesses that regularly hit their numbers, accomplish their goals and objectives and satisfy their customers look much more attractive to investors than those that don’t.

Operating systems also help bolster a company’s value in the eyes of investors by ensuring that everyone is able to make strategic decisions. Some companies rely on the founder or a few leaders to call the shots, but that dependency can cause problems if leaders leave the company. Investors want to know a company is layered with talented, hard-working people who understand the vision of the business and can execute on it. When every leader, manager and employee within a company uses the common language and set of tools that an operating system provides, it’s much easier to prove this sustainability.

With an established framework for operations also comes concrete tools for communicating clearly and transparently. When companies define objectives, designate clear ownership, and report on progress regularly, investors see that they already have the concrete tools needed to communicate externally as well.

Maintaining a Successful Relationship With Investors

Once investors are in the door, you need to keep them happy. Get the most out of VC and private equity relationships with these three tactics:

1. Clearly define your vision and plan, then share it internally and externally

In order to communicate clearly, you must define your vision and plan. The first step is to ensure that the business leader and chief of operations are on the same page. The next step is to document that shared vision very simply. I suggest a two-page document: page one details the vision, and page two details the steps to bring it to life. Steps should include a handful of specific goals (both for numbers and strategic initiatives) so that everyone — leaders, employees, and investors — knows what it will take to succeed.

You must also consider how to maintain this alignment. As business needs and goals change, your vision might, too. The business leader and chief of operations should meet regularly, perhaps once a week, to discuss the vision and evaluate new obstacles and opportunities as they occur. This frequency ensures that changes to the vision are incremental and prevents the formation of gaps in how the vision is understood and executed. Keep notes on how the vision evolves and update your vision document once every quarter to reflect updates.

Each time the plan is updated, share the new document with team members, board members, customers and investors. A simple two-page document that provides a transparent window into your business can go a long way toward building confidence in your company.

2. Don’t hide the issues

When something goes wrong, come armed with a plan to communicate, discuss and solve the issue with the team instead of trying to hide it under the rug. It’s critical to be open and honest. Share the good, the bad and the ugly with both your team and your investors. You can’t solve problems alone, and investors know that every business has issues. They won’t expect yours to be any different. Instead, when you’re transparent and ready to work collaboratively with your board and stakeholders, it builds a stronger working relationship.

3. Invest in the right structure, the right culture and the right people

Achieving your vision will require creating and maintaining a culture that supports that vision and embodies your core values. To build that kind of culture, you must hire people who align with the vision and values as well. Remember that taking the time upfront to hire exactly the right people will always pay off in the long run. You will see a return on your investment financially as retention stays high, and you will see your company grow stronger as each new excellent fit will drive the entire team toward success.

Weave questions about your vision and values into every stage of the interview process, and ask clearly and directly in the later stages of the interview whether or not the candidate believes in those values and your vision. The clearer and more direct you can be about what those are and how important it is that each employee embodies them, the easier it will be for candidates to give you clear and direct answers.

Each employee who is passionate about your company and its vision can serve as a beacon of light, sharing excitement and advocating for the business to the world. Investors will notice: They want to see that a company hires only the best, and they want to know that every employee believes in what the company stands for and what it can do. When investors continuously see that your team aligns with your vision, reflects your culture and moves the needle forward, they’ll know you have all the right pieces in place to remain successful.

Opportunity abounds for small businesses and entrepreneurs seeking funding today. Those who can build and maintain relationships with investors will see the most benefit in the long run.

Smart leaders will focus on strategies to attract and engage investors now to ensure solid relationships into the future.

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