“Founder-friendly” is becoming an increasingly important part of venture capital firms' arsenals in an increasingly competitive investment environment. But what exactly does “founder-friendly” mean? And has the phrase actually become a marginal marketing buzzword?
in Episode 13 “Destruction” of AfricaVC monthA podcast series released in partnership with Raisani Capital, Atlantica Venturesand Goodwell Investmentswe met with a leading Africa-focused investor to discuss how to be “founder-friendly” and whether it's the real deal or just a marketing ploy.
It used to be that you could stand out from the crowd by describing yourself as “founder friendly,” but most VC firms now do that. The problem is that there is no “one-size-fits-all” definition for this phrase, and the phrase itself assumes that it can be contrasted with “unkindness toward founders.” Investors we spoke to agreed that in reality, the term has become completely meaningless.
Brett Commaille, founder and managing partner of South Africa-based VC firm Hlayisani Capital, says the term “founder-friendly” is a marketing tool used in many different ways to suit many agendas. says.
“Investors are always looking for ways to distinguish themselves from other investors, so 'founder-friendly' has become one of the more frequently used terms,” he said. Stated.
But then, is there a definition of “founder-friendly”? Actually, that's not the case. Two people will use it in completely different ways.
“The meaning behind it was supposed to be to let the entrepreneurs actually get on with their work and for us to get out of the way,” Conmaille said.
“But as an investor, there is a lot that you need to bring to a business, and it really depends on where the business is and the experience of the founders and the team. It really depends on what you need.”
Wim van der Beek of Goodwell Investments introduces his attempt to define it.
“I think what’s really important in understanding how businesses grow and the role of capital providers and support systems in growing a business is that it’s really important to understand the growing pains of a business. Being able to contribute to that and help founders go through their growing pains,” he said. “From that perspective, I think the approachability that founders can experience is with someone who understands their problems and helps them solve them.”
Therefore, problems can arise when definitions differ or when it is unclear what exactly “founder-friendly” means.
“This term is a bit problematic because it’s being confused with investors not doing their job properly, not doing proper due diligence, not being too specific and clear about the terms of the deal. “There is also,” Van der Beek said.
“Investors have a role to play, founders have a role to play, and there should be no confusion of roles. So that's what's happening with the use of the term 'founder-friendly.' It may look like this. I'm hesitant about this concept and think it's overrated. ”
Commaille says the term “founder-friendly” is often used as a cover.
“I think it can be used as a cover for investors who are just lazy or lack resources and don't have the ability to add value or be involved,” he said.
Governance is key, says van der Beek.
“In fact, we are quite rigorous about governance, and the people who understand that and have been on that journey with us and understand the benefits of putting good governance in place are actually looking forward to the long-term “We're very founder-friendly,” he said.
“Governance conversations typically tend to be a very good indicator of how “investor friendly” the founders are and how “founder friendly” the company is. ”
It's very important for entrepreneurs to build a really good capital stack and understand who's on the cap table.
“If too many people want to get involved, especially if too many people are poorly informed, it can actually become very dangerous,” van der Beek says.
“I think it's a very healthy thing for investors who don't really understand what's going on in the business to leave it up to the entrepreneurs. But at the same time as they seek capital, they invest For founders who also want support from home, I think it's really important for investors to really understand what founders need. “Founder friendliness'' is really important. ”
While it's certainly important to get the balance right, VCs always come with a significant level of responsibility.
“Input comes in a variety of ways. While there are advisors available at any time, actual board members have different levels of obligation to the company and may ask more questions or I have an obligation to actively participate in the company,” said Conmaille.
“The core requirement in all of this is transparency. Investors and CEOs or founders need to have an open and honest conversation upfront and say, 'What do you expect?' Ask, “What do you need?” and build a clear relationship: “This is what we’re going to do.” Some of it is contracted out in funding agreements, and the rest is a social contract between the two parties. ”
