What this VC thinks all entrepreneurs should know about the investor-entrepreneur relationship

Posted on July 12th, 2016

What this VC thinks all entrepreneurs should know about the investor-entrepreneur relationships

He is described as a technology startup “go-to market strategist” – which basically means Llew Claasen is really good at building successful startups.

He is the co-founder of Newtown Partners, an angel investment and venture capital firm based in Cape Town, and while he may not be as well-known as his business partner and co-founder Vinny Lingham, Cape Town-based Claasen is one of the country’s celebrated venture capitalists and investors.

Many people will know Lingham as a Silicon Valley self-starter who sold his virtual gift card service Gyft to First Data for over $50m in 2014 as well as judge on the TV show Dragon’s Den SA which is where Claasen and Lingham founded their VC firm and made some of their first investments.

Claasen has also been on the the other side of the investor-entrepreneur divide as a bona fide maverick techpreneur as well.

He co-­founded a number of startups including digital marketing company, Clicks2customers, digital consulting firm, KeyJam.net and is the newly-elected executive director at Bitcoin Foundation, the oldest and largest Bitcoin advocacy group in the world.

He is one of a handful of investors that startup founders seek out for advise, mentorship and investment.

Claasen, together with Lingham – have contributed to the success of many local startups and have invested in companies such as popular artisanal online store, Candy Wasted; rental startup, Ekaya; online bottle store, Puremix, fresh flower e-commerce and delivery company, SA Florist; media darling on-demand cleaning service, SweepSouth and Wumdrop, an on-demand courier startup.

Cashing in on your investment golden ticket

One of the biggest goals for most startup founders is finding an investor for their business. But when the deal has been struck and the papers signed – what then?

It is often said that ‘you get the VC you deserve’, it is important to make sure that you nurture a good investor relationship with your VC.

With extensive experience as an investor, Claasen knows a thing or two about nurturing the partnership between investor and investee.

He says, far too many startups fail because entrepreneurs don’t communicate enough with their investors.

“Make sure that you communicate frequently and openly with your investors,” says Claasen.

SME South Africa speaks with the no-nonsense investor about the truth about what investors expect from startup founders and why VC investment is almost always more than just money.

Q: How will an entrepreneur know if they have found a good investor?
Tough question! I always use the analogy of dating. Go on as many dates with potential investors as is necessary for you to be comfortable working with an investor team. They should be patient and supportive and commit to providing you with access to their network of contacts for business development purposes. They should understand your market and business model.

Q: How should entrepreneurs nurture a good relationship with their VC?
Don’t ever be concerned that you’re communicating too frequently or too much. Be open to feedback from your investors, even to trying new things in your business that you’re relatively confident will not work – you will be surprised how beneficial their experience can be.

Q: How do you choose the businesses you invest in?
We look equally at the business opportunity and the entrepreneur. Key for us is to find a startup tackling a large market opportunity that can be disrupted by emerging technology, characterised by frequent or recurring consumption, with a product that the market is likely to adopt and where the entrepreneurs have the skills and experience needed to succeed in their chosen industry. We also prefer to invest in co-founder teams that include an operator and a technical specialist.

“Don’t expect investors to make your business a success – get out there and hustle”

Q: As an investor, how do you bring value into the businesses you invest in?
Startup management decisions are not binary. Most decisions involve assessing probabilities and it’s useful to have trusted (and invested!) people that you can bounce ideas off of. As much as I play a mentorship role, I also act as a sounding board to entrepreneurs in our portfolio. Most importantly of all, I provide access to market and access to network for business development purposes, which is actually what grows businesses.

Q: What should startup founders know about getting the most out of their investors?
Set up a recurring lunch meeting with your investors – at least every 3 months for inactive investors and at least monthly for active investors. Communicate frequently about what is happening in your business. Don’t expect investors to make your business a success – get out there and hustle!

Q: What are your tactics for increasing meaningful engagement with the entrepreneurs you invest in?
I prepare a KPI (key performance indicator) reporting template for all new investments. This ensures that entrepreneurs track those things that are most important for their near-term success and understand what the investor expectations are. The template is very useful at framing a monthly check-in for all investees.

“Relationships are everything – if we can’t work with an entrepreneur, then I really don’t care about losing out on the next African unicorn”

Q: What are some of the biggest misconceptions about the investor relationship that you’ve come across?
Many entrepreneurs believe that investors will be actively engaged in new business development for their investees. It doesn’t happen and it’s not feasible, since we don’t have the capacity or the mind space to be doing this actively. An entrepreneur needs to pull out of the investor what they need from the relationship.

For example, don’t expect your investor to introduce you to all the people they know that may be interested in buying your product or service – go through their LinkedIn profile contacts, search for people they know that you think will be interested in your offering and actively request the introductions from your investor.

Q: Could an investor relationship be toxic and what should a business owner do if it is?
I wish that this wasn’t true, but investor relationships certainly can be toxic. If there is no opportunity to exit the toxic investor to a new investor, then work on managing the relationship. Set up shared goals that will enable you to manage the investor expectations and provide a framework for engaging with the investor.

More often than not, this relationship becomes toxic because of investees not managing the relationship with the investor properly, including not communicating frequently, not holding themselves accountable for missing targets or not managing spend responsibly.

Q: Have you ever had a bad relationship experience with a business you had invested in and how did you deal with it?
Definitely. We seek a quick exit at as close as possible to what we invested. Relationships are everything – if we can’t work with an entrepreneur, then I really don’t care about losing out on the next African unicorn. Life is too short to spend it working with [unsavory characters].

Q: What have been your biggest success stories and what was the role you played in their success?
I think that our biggest success in our most recent cohort has been SweepSouth. Aisha and Alen tick all of the boxes for a startup dream team and they’re tackling a really big market opportunity (domestic cleaning services) that has hardly changed in the last 100 years, with really smart technology that their customers love.

I was very involved in their market and pricing strategy in the first year of being invested and I even managed their first Google Adwords ad campaign myself. I like to think that I helped them to better understand who their customer was, shape the offering to the requirements of that segment and get the initial market validation that enabled them to achieve the product market fit necessary for larger rounds of financing.