How to have hard conversations with your portfolio companies


When a founder is considering making a big move, they’ll talk to their investors about the idea.

And let’s be honest – sometimes the founder isn’t ready for that big change. The team hasn’t found product/market fit, or they’re dealing with burnout, or they’re distracted by feature creep.

The best thing you can do as an investor is to give feedback to your founder in a helpful and respectful way.

Because poor communication will likely ruin your relationship with the founder (don’t ask me how I know).

Poor communication can lead to things like:

  • Avoiding hard conversations 
  • Both sides leaving the meeting not feeling seen or heard
  • Feeling like you’re not on the same team

Frankly, our team at Hustle Fund has made mistakes like these before. The same is true for most investors.

This week we’re gonna go through examples of these mistakes in action, and cover what you can do instead to be an amazing investor.

Note: For a primer on excellent communication with your founders, check out last week’s piece: So your portfolio company wants to fundraise...

 

Example #1: Giving vague feedback 

Let's say a founder wants to raise more money. The VC believes they should cut costs and focus on growth before fundraising. 

But instead of sharing how they really feel, the investor says: 

“I don’t think you’re ready now but let’s circle back to this later.”

Many VCs punt these kinds of hard conversations because they don’t like confrontation.

We get it. Confrontation can be scary and uncomfortable.

But vague advice harms everyone. 

When investors give vague feedback, they aren’t saying what they truly think. So they walk away from the meeting feeling dissatisfied and regretful.

Meanwhile, the founder feels like the investor doesn’t trust them enough to be upfront. They might feel like their investor is keeping secrets… secrets that could impact the business.

Both parties leave the meeting feeling like they are on different pages, and aren’t eager to talk again.

This puts a wedge between founder and investor, which can lead to resentment and distrust.

 

Example #2: Pointing out problems, not solutions

“You aren’t ready to raise your Series A. You need to scale your revenue to at least $2m ARR first.”

This advice is better than receiving vague feedback. A decent investor will be brutally honest and explain what the founder needs to do.

But a great investor won’t just tell the founder what she needs to do. A great investor will try to unblock the problems their portfolio company are facing. 

They might say something like:

“Most Series A investors want to see at least $2m ARR. To get there, I think you should focus heavily on closing a couple of big clients. Let me reach out to two sales experts in my network to see if they’d be willing to mentor your team.”

Even if your portfolio company doesn’t take you up on your suggested solution, they’ll recognize that you are someone they can brainstorm with. And that builds trust.

When they trust you, they’re more likely to listen to your feedback.

 

Example #3: Founder wants introductions

Let's say your portfolio company wants an introduction to other investors in your network. The problem is... the company isn't doing well.

This is tricky – you want to help the business, but you don't want to pitch your investor friends on a company that might fail.

Eric Bahn’s advice:

“Don’t decline but strongly recommend.”

Eric wants to empower founders… not squash their entrepreneurial spirit.

If a founder asks for introductions and you say no without any context, you’ll come across as an unhelpful jerk.

Eric recommends investors frame the conversation to always be on the side of the founder.

“I want to be helpful and give you introductions for your series A but I don’t think this is the right time for these reasons… I am reluctant because… If these things change, I would feel better about fulfilling your request.”

In simple terms: I hear you. I want to help you. These are the things that are holding me back. Can we talk through them?

Both you and your founder need to be heard and feel like you’re on the same team in order for your advice to land.

 

How to get better at having hard conversations

These tips are simple to understand but difficult in practice. Eric shared a few resources on how founders and investors can improve their skills.

Work with an executive coach 

A coach will help you understand the fundamentals of communication and dramatically level-up your EQ. The majority of the top CEOs in the world work with a coach to help them function at their best.

Have great partners 

The worst feeling for Eric is to have a partnership where you can only share good news. That’s not a partner, that’s a lackey. You need someone to call you out on your bullshit, or you will never grow.

Put in the reps 

Eric has a difficult conversation at least once a week. In the beginning, he felt afraid and avoided these talks. But he knows the dynamic is not him vs. the founder. It’s the founder and him vs. the problem. This mindset of having the founders’ best interest at heart makes Eric more motivated to have these conversations as early and often as possible. 

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