At Instacart, I had the privilege of being part of $2.4 billion in equity capital financings over eight years.
We raised money in various market environments – sometimes with great metrics and many times with terrible performance but a great story.
We worked with firms across venture capital, growth equity, crossover funds and asset managers – Khosla Ventures, Sequoia, A16z, Kleiner-Perkins, Coatue, D1, General Catalyst, Gladebrook, Fidelity, T.Rowe Price, and The Capital Group were all key Instacart investors.
We also raised money at key moments from important strategic partners – including some of the best grocers and consumer packaged goods firms in the world.
Here’s what I learned:
- Your investors might be around much longer than most of your employees and even you as the founder.
- It’s critical to bring a diverse set of investors to the table so that you get diverse perspectives, but perhaps just as importantly, so that they can balance each other during moments of contention.
- Investors can be extremely beneficial, but you have to engage them thoughtfully and understand that they are also people – with egos, aspirations, and personal goals. If you treat them poorly when you have leverage, do not expect them to treat you well in your moments of need.
- Investment firms and the partners within them have vastly different styles, priorities, objectives, and biases. While different firms have distinct brands/cultures, you cannot easily predict the experience you will have with a given investor just based on the firm they work for.
- Investors should never run your company, but their advice, connections, and perspective can amplify your energies far beyond just providing capital.
As I raised capital for Beacon, I was fortunate to find a group of capital providers who I trust, who share my values and balance each others strengths.
However, many entrepreneurs aren’t as lucky.
Over the past couple of years, I’ve had numerous conversations with entrepreneurs seeking advice on getting out of ‘bad marriages’.
A bad investor, especially early on, can haunt you during tough times. They might prevent you from running the business for the long term and push for overly aggressive or overly cautious strategies based on their own goals.
Fortunately, it’s becoming easier to get out of these bad partnerships. You can bring in new like-minded investors through recapitalization, IPOs (though read your documents carefully for what constitutes a qualified IPO), or negotiate trade-offs like offering dividends, hiring a senior executive, or approving a secondary transaction allowing them to trim their stake to get what you need and reduce the volume of their voice.
Another area where entrepreneurs struggle is price expectations when raising new capital.
Remember the saying “you name the price, I name the terms”.
There are various ways to bridge the gap when you can’t align on price. For example, you can suggest an incremental management incentive plan (MIP) where you and/or your management team are issued new shares based on achieving specific performance or valuation targets. This can help offset dilution from a lower-than-desired price.
It’s not just about getting the funds you need; it’s about finding partners who align with your vision and values and will be flexible around the company you want to build.