When Micah Rosenbloom was 29 years old he was diagnosed with high blood pressure. The early diagnosis was linked to the mental debt of being a startup founder; The highs and lows one can only grasp through experience.
“The myth of entrepreneurship is that it’s about ideas and vision. They’re certainly a big part of it, but the primordial goop of actually making a business is not as interesting,” Micah said, reflecting on the middle ground.
80 percent of it is making hard decisions every day and not sleeping very well thinking about them.
At Micah’s second startup Brontes Technologies, the 3D scanning system that replaced conventional dental impressions, he spent his days addressing customer service issues and managing his team in the US.
Twelve hours later, his Blackberry illuminated his bedroom notifying him of emails from global customers and team members inquiring about the same requests.
Startups are built on blocking and tackling. That’s what businesses are made of.
Micah’s understanding of life as a founder is the inaugural principle of his venture capital firm Founder Collective where he invests alongside former and current founders like Scott Belsky and David Frankel.
Their investments are shaped by the single belief “that the next great opportunity can come from anyone, in virtually any industry.”
Great companies come from odd spaces.
Since raising their first fund in 2009, they’ve invested in over 190 startups making Founder Collective the largest early stage investor on the East Coast. Their portfolio ranges from pharmaceutical companies (Pillpack), to trucking startups (Transfix), and widely known businesses like Uber and HotelTonight.
“Truly being a seed fund,” the investors are viewed as objective partners who play an active role helping founders make “structural and strategic” decisions. They’re proud of being the first call when something’s gone wrong at one of their portfolio companies.
Here are three insights Micah and his team at Founder Collective impart to their founders as they navigate the evolution of their businesses. You can gain deeper insight into their involvement in Micah’s episode of Beyond the Headline.
Contextualize Your Investors’ Motivations
After raising four rounds of venture capital for three startups, and currently being an investor, Micah would have cultivated a deeper understanding of his investors incentives and motivations.
It’s important to contextualize who you’re taking money from and how they’re going to think about your future and the company’s future.
Answer these questions before approaching investors to raise your next round of capital:
- How does this investor’s fund size work?
- How does it impact the way they think?
- What is their strategy?
- What is their LP base like? How do they influence their decisions?
- How many partners do they have? Where is their standing in the partnership?
Micah also encourages founders to get to know investors outside of the office.
“There’s something about getting outside of the office in the diligence process that is disarming for you to understand: What is this person really like?”
You want to be able to answer: “What are they like when they aren’t surrounded by their partners or associates?”
Micah practices the same principles. It’s a top priority for him to spend time with founders over coffee or dinner before partnering.
He’s also adamant about visiting a company’s office to unearth the team’s culture and distinguish the traits that make them unique.
Additionally, founders should gain insight from other founders in an investor’s portfolio to determine his or her involvement.
Resist the temptation to only reach out to successful startups in their portfolio. It’s most telling to speak to founders whose companies have faced challenges, pivoted, or folded. These conversations will enable you to unveil a VC’s long-term commitment, availability, and feedback style.
You see a big disparity of VCs who only focus on their top 10%.
Remember: Every company struggles at some point. You need to grasp a VC’s involvement throughout the life cycle of your company, not the press worthy milestones.
At Founder Collective, the partners commit most of their time to the portfolio companies that need help.
“Companies who are doing well are on autopilot. They’re doing their thing. We stay out of the way,” Micah explained.
Understand the Realities of Raising Capital
In Micah’s post Don’t Let Your Investors Buy All the Options he describes optionality as the difference between “asking for permission and proactively making decisions” at your startup.
“There’s a temptation to raise money, especially now when there’s a lot of capital in the market, as almost a validation of your business.”
“Yet, as a founder, your options get fewer.”
Whether it’s a decision to pivot, sell the company, or even move your business, all of these options get more complicated when you raise outside funding.
You have to justify your decisions, manage expectations, and maintain your credibility.
People underestimate how much freedom you lose when you raise capital. The more you can bootstrap, the more flexibility you have to make decisions.
Use the Ownership Mentality to Manage Capital
Citing his partner Eric Paley, Micah encourages founders and teams to recognize that “every dollar spent is a dollar of dilution.”
The mentality fuels a culture of ownership where team members approach each decision considering the impact it will make on the company. This is the difference between managing a budget at a large corporation and at a startup. At a startup, you have to determine how to make it happen.
“You have to raise more or you’re burning what you have. You’re all diluting,” Micah asserted.
Make it clear that “the less we spend, the more of this company we own. The more we own, the more we’ll all have at the end.”
“That’s what so great about startups. Everyone should feel like an owner.”
“It’s not a job where you say, ‘Let me tell you what happened at work today.”
It’s about telling people what you’re building. It’s all consuming.
If you’d like to learn more about Micah’s journey leading three startups and investing at Founder Collective subscribe to his podcast Collective Wisdom (they have great transcripts too!), follow him on Twitter, and read his blog, Serendipitous Entrepreneurship.