September 2009


Perhaps the most important relationship within a start-up business is the adviser relationship.  Some entrepreneurs know how to leverage this relationship very well, while others believe that it is a waste of time and energy.  I believe that, if properly aligned and matched,  the mentor/adviser relationship can elevate a start-up to the next level.  From a definition standpoint, I am considering a mentor someone who is not compensated for their time/effort and an adviser as someone who is (either via equity or with payment).

Over the summer, I have had the unique opportunity to mentor a New Haven, CT based entrepreneur on her new start-up.  While I have been unofficially advising companies over the past 3 years on a one off basis, the relationship that I struck with this New Haven start-up was more formal in nature.  Weekly calls, regular in person meetings, help developing financial models, employee contracts, etc. (It is important to note that I have no financial incentive in the company and have not been paid a *consulting* fee or equity by the founder).

And, over an Indian food lunch yesterday with the start-ups founder, I began to realize that as a VC, the role of a mentor is far more complicated then strictly giving advice.  When going into the formal relationship with my NH based start-up, the most important thing that myself and the founder did was to decouple my relationship with LaunchCapital and my relationship as a founder.  The reason that we did this was to make sure that I was fully aligned with helping her grow her business and receive the best terms possible for her angel round of financing.  Obviously, if I am trying to maximize the terms for the entrepreneur, I am misaligned with LaunchCapital’s financial incentive.  Therefore, decoupling was necessary.  And, by allocating another resource to advise LaunchCapital as to whether or not to make the investment – independent of my opinions of the start-up – we were able to seamlessly due diligence.  While not the perfect solution, it certainly helped.

So, for those entrepreneurs who would like to bring a mentor or adviser into their business, I have a list of 5 necessary things to make the relationship worthwhile:

1) Align all incentives.  Make sure that the mentor/adviser is not working with a competing start-up, does not have board membership on another company that could cause a misalignment.  If the adviser is from the venture community, I would ask around to see what companies they have been actively engaging, what companies they recently funded.

2) Require regular meetings.  A lot of entrepreneurs that I talk with have great advisers and mentors to lean on, but talk with them so infrequently that they are not successful at leveraging their expertise and connections.  To maximize the time and relationships that you have, I would schedule bi-weekly calls and monthly in-person meetings with all of you mentors and advisers.  And, if a mentor/adviser is not willing to meet that often, then it should be seen as an indicator of how helpful they will be in driving your business forward.

3) Don’t offer equity or payment until the adviser says something.  The start-up ecosystem is such that people are willing to do a lot of work and mentoring without compensation.  Before you are willing to give up that valuable equity award, make sure that you work towards a non-payment agreement first.

4) Identify your needs from this person before you develop the relationship.  Most mentor/adviser relationships fail because the entrepreneur hasn’t identified what the needs are from the person with whom they are talking to (it is also pretty frustrating to be on the other side when this happens).  Advisers and mentors can be valuable in more ways then just making introductions.  Many times, these people have built teams, businesses, made sales pitches, etc.  Use them for everything that you have not done before.

5) Have an end goal.  For any informal relationship to work, I believe that their needs to be an end goal that everyone is working towards.  It could be anything from raising the angel round to successfully selling your product to a strategic customer.  Regardless of what the end goal is for you, make sure that you have decided on final outcome that you want to see from the mentor/adviser relationship.  And, once this final outcome is achieved, celebrate and move on.  There is often a feeling that these relationships should last for ever.  In my opinion, that is not necessary.

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On September 1st, LaunchCapital celebrated the 15th month since we made our first investment in a seed stage start up.  Since our first investment in a small web development company based in San Francisco – NorthxSouth, we have been busy.  We’ve invested in 27 companies across 10 unique industries, we are launching LaunchCapital SB (official launch coming soon), we’ve built our outsourced team to 30+ people, and we’ve struck relationships up with 15 universities around the country.  We took a unique approach to starting LaunchCapital, but one in which we tell many of our portfolio companies to do: stay nimble, adjust to changing market conditions and listen to your customers’ needs.  And, by doing this, we have seen both subtle and drastic changes in everything from our strategy t0 the types of companies we invest in.

With the launch of our new website, we want to show our customers (those entrepreneurs who are out there blazing new paths with innovative approaches to old problems) that we have been listening to them throughout the months and are continually trying to provide them with the best service that we can.

Our new website is comprised of three different elements: 1) Actual site itself  2) Blog  3) LC Community all of which we hope will help entrepreneurs gain better access to information and to us.

The first two features are relatively obvious: to provide clear and concise information for entrepreneurs looking to understand more about LaunchCapital and seed stage venture.  The directors of LaunchCapital (Bill McCullen, Heather Onstott, Konstantine Drakonakis and myself) will each blog about topics that are relevant to the seed stage community.  And, in an effort to provide entrepreneurs with broad information and content, we will also invite portfolio company executives and service providers who may have great ideas on fundraising and the seed stage environment to contribute to post to our blog.

The third feature, LC Community, was contrived through discussions that we had with entrepreneurs in trying to determine what their biggest pain points were.  Throughout these discussions a few key themes began to emerge.  Most importantly, we began to realize that most entrepreneurs need three things that they find difficult to get: 1) connections  2) advice/mentorship  3) companionship/feeling of community.

By leveraging the forum technology that our portfolio company Lefora has developed, LC Community strives to create easy place for entrepreneurs, service providers and VCs to interact.  In essence, we want to create a place that feels professional enough for business relationships to develop, but friendly enough for collaboration to take place.  Whether it be discovering a new product or tool that may help and existing business, to networking with a lawyer who can help with your next fund raise, we hope to create a community and environment where entrepreneurs and service providers feel comfortable enough to ask those nagging questions which we all sometimes have (the one’s where you feel embarrassed to ask, but really need to know an answer to).

It is important to note that LC Community will have an open format, so discussions will be user generated and only lightly monitored by LaunchCapital.  And, of course, we will chime in when we feel that we have the expertise to accurately answer questions.

Well, that’s all for now.  Enjoy the new site and look out for upcoming blog posts.

~Elon