Dayton Miller is the Managing Director of BFG Partners, a leading venture capital firm specializing in early-stage consumer products.
As former operators of businesses ourselves, my firm, BFG, prides itself on being founder-friendly and a good partner to our portfolio companies. Because we’ve worked on both sides of the table, our team has the ability to empathize with founders and know how to add value to companies beyond just capital.
We’ve seen firsthand the benefits of good partnerships between business operators and their investors, as well as the importance of communication and a shared vision for the brand. If you’re an operator, here are some tips for getting the most out of your investor partnerships.
Communicate early and often with your VCs.
VCs are more than just a source of capital. They’re also useful advisors. Sharing both good things and challenging scenarios with them will build a relationship of trust and give you access to more operational support. After all, your VC may have seen a particular problem before, making it easy to connect you with others in their portfolio or network at large who have had similar experiences.
Keep In Mind: Your VC should never learn about bad news along with everyone else in a board meeting. Reach out to them ahead of time, whether face to face or over the phone. This way, your partners can offer support in real time as you address road blocks. One strategy is scheduling regular touch points or phone calls with your VC, like monthly financial reviews or weekly calls; it may depend on what’s going on with your business at any given time. Don’t be afraid to lean on their expertise!
Be strategic about your valuation.
Just because you can get a certain high valuation doesn’t always mean you should. While getting the highest possible valuation this round may minimize your dilution, it gives you less room to operate for future raises. It may also make it more difficult to attract talent. Aim for a valuation that’s fair, represents your business’s intrinsic value for today and the future, and still gives you some room to grow past it.
Keep In Mind: Moderation leads to longevity; greed leads to downfall. Rather than basing a valuation purely on growth potential or market, you should also consider the current and future competitive set and take into account existing data. Look at key performance indicators like unit economics, trailing 12-month revenue, capital efficiency to date and macroeconomic climate—to name a few. These are all important considerations for setting a feasible valuation that creates a sustainable growth trajectory.
Don’t try to put the “fun” in fundraising.
Fundraising is, fundamentally, not that much fun. So be smart and raise enough for your needs now as well as a cushion for the future. Our team at BFG Partners has seen many businesses that raised without considering downside scenarios, which led to scrambling to raise from a position of weakness. Take the outbreak of coronavirus for example. The pandemic led to significant supply chain disruption that many business operators didn’t account for, resulting in a negative impact on sales and ultimately an urgent need to raise more capital. The businesses that fared best were those that had solid financial foundations and security to carry on in the midst of the crisis.
Keep In Mind: Raise enough capital to last 18-24 months if you hit a downside scenario. This means accounting for any potential unforeseen capital needs like misses to top line, marketing inefficiencies (such as the recent iOS changes), increases in ingredient costs, potential incremental hires, big distribution opportunities and more.
Hire smart, driven people, even if their experience is unconventional.
I encourage you to look for more than just direct experience when you’re hiring. There can be certain traits that make the most sense for your teams. For example, while this is a bit of a generalization, athletes are typically goal-oriented people with a strong work ethic and strong attention to detail. That mindset is helpful in the early innings, when your brand is striving to reach specific metrics. It’s also good to hire people who are scrappy and willing to learn. Some of the best hires our portfolio has made were people outside of the consumer goods industry who were eager to get their hands dirty and didn’t view any task as beneath them.
Keep In Mind: Intrinsic motivation is one of the toughest traits to teach, yet it’s incredibly common among high performers. To assess whether candidates are motivated enough, ask about previous roadblocks or challenges in their current/past role and life at large. How did they overcome or turn those situations around?
It’s important to look for more than just direct experience when hiring. Assessing more general characteristics and experience is often more helpful in building a team. For example, synergy between operators and venture capitalists is crucial for unlocking unparalleled opportunities for growth and success. By maintaining transparent communication, being mindful of valuations and smartly managing fundraising, you can leverage your VCs to better navigate the complexities of scaling your business. Remember that your journey is about more than the capital you raise. It’s about the relationships you build and the talent you nurture along the way.
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