📖 This article is part 4 of a wider series on "Founder relationships 101 for MENA VCs", you can check out earlier instalments here.
There is a particular irony embedded in the venture business that almost no one in it talks about openly, which is that the relationships every VC works hardest to build are the ones they should, if they are doing their job properly, eventually be ready to step back from.
The early-stage investor who is still micromanaging at Series C is, in most cases, no longer the most useful person on the cap table. The seed-stage board director who cannot quite bring themselves to give up the seat to a Series B lead with deeper operational expertise is, in functional terms, holding the company back.
And the partnership that started in the founder's first year and is still operating on the same intensity in year seven is, more often than not, the partnership that has failed to evolve in the way that healthy partnerships are supposed to.
The fourth and final step in this edition, and in the series as a whole, is about that evolution. How a useful early-stage investor knows when to step back. How a useful board director knows when to make room for someone with a different skill set. How a useful seed-stage relationship transforms, over the better part of a decade, into something that long outlasts the original investment.
And why the investors who get this part right tend to be the ones whose names keep coming up, again and again, in the next generation of funds and the next generation of founders.
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The relationship is supposed to evolve
Virtually every investor we spoke to said in some form, is that the goal of a healthy founder-investor relationship isn't to remain operationally central forever, it's to be operationally central at the moments when the investor's particular brand of help is most useful, and to step back as the company develops capabilities and brings on other investors whose particular brand of help is more relevant to whatever comes next.
As a company develops and grows, we become less hands-on. We're available as needed, and that's how our model is built. Our investors have asked us, how are you going to manage 25 companies? And the answer is, we're not. We're going to manage five, those five are going to grow and raise more money, and then somebody else is going to manage them. Because we can no longer add as much value as we did at the early stage. So it's really about passing it on.
The implicit alternative, in which the early-stage investor remains the primary advisor through Series B and C, isn't merely operationally unrealistic for a fund running a portfolio of any meaningful size, it's actually unhelpful for the founder, who at that point needs Series B advisors with Series B expertise, rather than seed-stage advisors trying to extrapolate from what they remember of the equivalent stage at a different company a few years earlier.
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