William: Most of you are running a startup for the first time. Virtually every demand and experience that you face is new to you. That includes both raising money as well as working with investors to build a successful business. With this in mind, I sat down with Krishna Srinivasan of LiveOak Venture Partners to learn how he works with the founders in his portfolio and what he suggests you can do to maximize your relationship with your investors. Enjoy. All right Krishna, thanks for joining us today.

Krishna: Well, it’s my pleasure.

William: Yeah, really appreciate your time. Now, if people want to learn how to raise money for their startup, they can go to the startupslingshot.com/money and dig into a free five-part mini course that I put together that highlights different entrepreneurs and how they went about raising money for their startup. That’s not really the goal of this interview.

The goal of this interview is to help the founders in our audience better manage their relationship with their current investors, but before we dig into how they can do that, can you give our audience maybe a 30 second overview of your background, including what you’ve been able to accomplish and what you’re currently working on?

Krishna: Absolutely. It’s been 15 plus years for me and my partners here investing in Texas, targeting early-stage companies here in this market. All of us at a firm here called Austin Ventures and then in the 2010-2011 timeframe, seeing the significant need for early-stage capital, we came out to start LiveOak Venture Partners, set out to raise a target of [inaudible][00:01:59], closed a fund which is a little north of $109 million which is exclusively focused on investing in early-stage tech here in Texas.

That includes both – so, we looked to be first institutional money in Texas-based companies, first check for us could be a seed which is a quarter to half million dollars and then for Series A stage companies, it is to do $4 million of investing.

William: Very cool. So, you got a lot of experience at Austin Ventures, at your new firm, you’re coming at the discussion from the investors’ point of view so as the audience thinks through this, they’ll be taking that into account, but let’s go ahead and dig in. How does that sound?

Krishna: That sounds great.

William: All right, so let’s start by maybe outlining some of the common situations where entrepreneurs and their investors should work together. Can you maybe think through a handful of those so we can make sure that we cover each specific one in this conversation today?

Krishna: Some of my comment is going to be around investors more as board members, but in general, investors stop the gamut from being a casual sounding board for entrepreneurs on tactical through some really strategic items.

Think of them – so, at one end of the spectrum, more of a casual sounding board, an ongoing partner on just a lot of critical items and works on the board and ultimately as a formal board member who’s got an actual fiduciary responsibility towards the company and for a share of the company. So, investors, board members play that entire gamut of roles from that casual sounding board to being this fiduciary role of the company.

William: Got you, yeah, go ahead.

Krishna: And so then that falls into some well-defined areas of assistance for entrepreneurs. It could be everything from recruiting, financing, compensation setting which the board role, strategy discussions which are sales, product marketing, etc.

And then perhaps genetically and perhaps the most important role is one of being an objective one step removed from the team, kind of to be the first person to separate out the early patterns of, you know, kind of often very weak signals from all the data that underlies the business, kinda separating out that weak signal from all the noise and being kind of the first guy to help the entrepreneur think through the situation on where exactly is the business going and what he ought to be doing. That’s perhaps the gamut of interactions I see in my experience between investor board members and entrepreneurs.

William: Yeah, very interesting. So, we talked about asking for help, board member interactions, raising funds, M&A, fiduciary responsibilities, all that good stuff. So, let’s dig in and start talking a little bit about asking for help. When do you think entrepreneurs should lean on investors as far as day to day operations?

Krishna: I always believe investors, board members should not be involved in day to day operations because if it’s missing something in the operational front, the team ought to deem the operational staff, investor board members are ones to promote, don’t talk to customers directly, but the interaction between them could be ask frequent as the entrepreneur desires or that the board member desires but not to get in their pants and be the details here but it’s often very multimodal in nature, right, it could be email, text, chats, coffee, grab a drink and of course regular board meeting. So, it just could be all of those forums in which this asking for help aspect happens here.

William: Got you. So, not on the day to day nitty-gritty in terms of operating the company but more if you take a step back, maybe it could be tactical but it also could be strategic ask for help. Are there any additional examples of where people shouldn’t ask their investors to do things?

Krishna: Again, investors are not talking to customers. So, it’s the company that spends oodles of time with their product talking to people. So, let’s just really appreciate the separation between the operating team and the investor board of the company.

William: Got you. Are there any specific types of crises internally that maybe investors should think about or, yeah, I’m sorry, entrepreneurs should think about getting their investors’ take on or getting their perspective on?

Krishna: Yeah, I think it’s important. The way I look, for example, to get these two agents to be is I always through continuous value add and being a good partner, I like to be the point of first call for good news and bad news that comes up in a business. And so you are continuously developing the pattern, the match in terms of how the company’s faring on an ongoing basis so you hopefully anticipating crises, you’re hopefully when a crises happens, be able to guide and advise the entrepreneur to do the right things by the company to get around the situation.

And so that’s exactly, you know, it’s not about calling you oh, by the way, this bad thing happened, but really viewing you and valuing you as a partner is the relationship that investors and board members should aspire to get to with entrepreneurs. You know that sort of situation cannot be forced upon an entrepreneur. It just needs to develop through trust and value for each other’s opinion is how these things have to come together.

William: Got you. So, as the perspective of these people in the audience is changing towards being a partner and not viewing it as kinda separate things but something where you might be getting the first call, you might be helping think through tactical, strategical stuff but also taking it with a grain of salt being that you’re not talking directly to customers or working with them. How should they think about specific asks? Is it as simple as hey, we’re looking for a CTO or hey, we’re looking for a VP of engineering? Is that something that investors specifically could help out with?

Krishna: Absolutely, I think the areas where investors typically help out are, you know, recruiting is a big thing. I’m always forwarding interesting people have come to the [inaudible][00:08:53] all of my companies. No. 2, financings, as you come up on financings, both individuals, institutions, both strategic as well as ask other VCs who could be interested in investing in a company.

And lastly, just more strategy stuff, you know, I’m trying to figure out my sales strategy here, compensation for my sales team, help me think through this, I have a product marketing strategy question, this is my product, this is the market, this is how I comparatively position my product in this market, how does that work out – those are some of the areas where you typically can see entrepreneurs looking to investors for answers and some guidance.

William: Yeah, that’s a great overview. I think the people in the audience should rewind and listen to that section again and make some notes so they can think through how they’re working with their current investors and maybe some additional ways they could be working with their current investors to kind of increase the size of the pie and make the company or increase the likelihood of the company being successful. That makes a lot of sense. Before we move on to talking about the board meeting stuff, is there anything else we need to talk about in asking for help?

Krishna: Can I say one thing? Yeah, absolutely, I think you might have a board depending on the size of the company or not. What I would really urge entrepreneurs to do is to have the one or two real members or maybe you don’t even have a board yet, people you really respect who can be kinda one step removed from the company, one guy’s a little bit outside of the company who can help detect the patterns and be a good partner to guide the entrepreneur on.

This is the new signal I’m picking up from all the [inaudible][00:10:46] of throwing at that media, you know, we’ve seen a lot of data on sales going well, sales not going well, product being perceived this way and that way, you know, team issues, whatever it is. It’s kind of almost the first person to help an entrepreneur pick out a weak signal from [inaudible]. What I mean by that is maybe it could be as simple as hey, I’m ready to step on the gas, I think you should be slamming on the brakes and going a little bit slower here.

I don’t think your partner’s quite right [inaudible] for you make a big push. It’s really important for the entrepreneur to have [inaudible] board or some trusted sounding board on the outside who can stare at the same data but being one step removed from it all, is able to provide guidance and even opine with confidence and the entrepreneur trusts this person on the macro course the company’s about to be set on so that they can start to make changes before data is completely [inaudible] what exactly is going on in the company.

William: Yeah, that’s a good piece of drive-home to the audience. Like you said, having that go to person or persons is gonna be crucial in the times of need and also in the times of celebration, right, things going well, that person to turn to to help you stay motivated and get the team keep going on the right direction. So, let’s transition over to talking about board meetings. What’s an expected communication, cadence or set of communications around a board meeting that entrepreneurs should kind of stick to?

Krishna: It really depends on the stage of the company and if you have an institutional investment [inaudible], particularly for early-stage companies, we have monthly board meetings and as companies mature into much, much, much better stages then goes into twice a quarter and maybe even once a quarter eventually. That’s more the formal aspects of a board here.

With respect to a communication, of course, that can happen in a what I did frequent times across the spectrum and that could just be phone calls to emails and all of that and that depends on the indicators [inaudible][00:13:19] the entrepreneur establishes with investors.

William: Got you. And so as far as a board meeting coming up, how far in advance should they try to set that board meeting? What should they send out in advance to the board meeting?

Krishna: I like almost having all of the board meetings for the entire year on my calendar, and we can resolve [inaudible] last minute. And it depends on [inaudible] board deck 24 hours before the board meeting so that you can come in more prepared for these meetings.

William: Got you. So, they should think about at the beginning of the year some type of planning session, scheduling out all the board meetings so you can get everybody in the right spot at the right time and then, like you said, sending out those board decks 24 hours in advance, correct?

Krishna: Correct, and the other thing is outside the formal scope it’s good practice at the end of every quarter, say the first year of the new quarter, send a paragraph, two to five sentences on how the quarter have been, with the highlights, lowlights. All my CEOs, the five CEOs that work with me, they all do that. In some very transactional businesses, even having that at the end of the month would be nice but in some instances might be too frequent so just a little bit more of a paragraph blurb on how the month, how the quarter, exactly what happened would be always available I think.

William: Got you. And what type of stuff would they actually include in there? Is it, you know, these are the sales that went well, these are key hires we made, that type of stuff?

Krishna: Yeah, but please not to be detailed about this. Often, it’s the one or two crucial metrics. Let’s say it’s a transactional business of some kind, maybe even a SaaS, the [inaudible] transaction business, finish the quarter, this kind of revenue, this kind of number of customers added, number of customers lost, you know, it could just be just that.

Pick the couple of critical things you think about on the business and flash that to, you know, maybe if you have a lot of investors, not everybody, at least your one or two principal investors might be a good thing. It just gets people oriented on how did the company exactly do last quarter and not have to wait for the next board meeting to get the full update on that.

William: Got you, makes a lot of sense. As far as the board deck, are there any things specifically that you’re expecting to see in there?

Krishna: Yeah, it’s always nice to begin a board deck with reminding investors what does the company need to accomplish for it to get to its next inflection point. To get to my next inflection point, I need to A.) Close this many deals, B.) I need to show this many customers are new. [Inaudible][00:16:17], summarize the Top 3 things that need to accomplish to get to the next meaningful inflection point for the company.

And No. 2, the CEO articulates what their Top 2 or 3 priorities are, that they are tactically working on to help get to the inflection point. It really levels the conversation of the entire board meeting on, what are the top priorities of the entire company the team’s working on and the CEO is focused on and establish a good basis for an ongoing conversation.

William: Got you. So, you talked about what are the key points, what are the key things you need to hit to get that next inflection point which could be, what, raising the next round of funding or it could be some other type of –?

Krishna: No, to be able to get to the next round of funding. Getting to the next round of funding is more of a developed aspect, right? The aspect could be trying to get to this many, something more core to the business, something more, internal stuff, something around I need to get to three to four customers or $100,000.00 each of, you know, [inaudible] for getting revenues and we show part of this [inaudible], Gen 2 product [inaudible] and it’s gotten good feedback from customers and this stuff works. No. 3, I need to build out my sales functions. This needs to be complete.

Maybe those are the three top things that the company needs to accomplish in the next six to nine months, which will set it nicely on a course to having a nice financing because the next investor will feel the company’s past the next point of [inaudible], next point of inflection, sets it up for a good financing is the natural implied assumption. So, what is the characterization of the next inflection point? What are the milestones the company needs to hit? Which will feel like it’s on a different level of operation, what would they be upfront and what are some tactical things the company is doing, if any, to be able to accomplish that.

So, it just makes everybody get on the same level playing field on what is the overall company focused on doing. And, of course, it’s always open for debate on what’s the right things [inaudible][00:18:37] working on or not, but it at least puts a very clear piece of paper as to what is everyone working on.

William: Got you, any other advice around board decks and what to include?

Krishna: I think those are the most important things, and then of course go through the functional areas in terms of what are sales up to, what is product up to and close with financials and talk about [inaudible] a lot of money, I think that would be the combination of things.

William: Very cool. Are there things that our entrepreneurs should be thinking about not communicating inside of a boardroom versus communicating outside of the boardroom?

Krishna: Nothing in particular and, of course, sometimes you have strategic guys who have observer rights and stuff like that. You would want to keep some sensitive matters that are not showing the hand too much to a potential inquirer for example. You would want to keep it into a separate closed session. Those are some things that you would do. In general, I would tell entrepreneurs not to surprise investors with dramatic bad news in a board meeting.

If there is a bunch of bad news, take the time to make a phone call to people to communicate bad news so that people come in with that orientation ahead on what has directly happened and you can use the board meeting to be more of a so what do we do now as opposed to having people even process the bad news at the board meeting is what I would recommend against doing.

William: Got you, makes a lot of sense, definitely something that we should drive home for the audience members. So, are there any other mistakes that you see entrepreneurs making around managing their boards?

Krishna: Yeah, absolutely, I think the most important that drives me nuts is I want entrepreneurs to take a stand on an issue. You obviously are making a lot of decisions all the time is not to just present the data and just turn to the board and say now what do you think.

Entrepreneurs should list a couple of options given the situation, have a management recommendation on something and, of course, the investor’s board can react to it and give their opinion or tell them that it’s a bad idea, don’t do it, but you want the team to list options and taking a stand on decisions is very important. Not doing that is a giant peeve of mine that people come in with just data and say now what do you guys think.

William: Right. So, it seems like they’re kinda outsourcing their thought or outsourcing their analysis to the board as opposed to putting that thought in, coming up with a direction that they’re going to propose then discussing that one.

Krishna: Exactly. And the second thing is sometimes people, some guys on the board, some investors have a pet issue, maybe it’s technology, and they’ll go down a complete rat hole, not necessarily relevant to the macro company direction, and I want entrepreneurs to take a stronger stand on controlling their agenda and the pace of discussion of the board meeting is very important.

William: Yeah, so how do you suggest someone interrupts one of their board members to kinda get them back on track?

Krishna: You can start by suggesting can we please, we have a lot of stuff to cover, would you mind taking this offline given we have other things to cover is always a classy, you know, soft way of requesting that.

William: Yeah, so kinda validating that that is a potential issue that needs to be discussed, that you’re validating what they’re saying but that you need to get back on topic for this specific meeting so you can get through everything?

Krishna: Exactly, exactly.

William: Got you, makes a lot of sense. Before we talk about raising money and that process, is there anything else we need to drive home around board members and board management?

Krishna: Yeah, it’s always annoying to see board members on cell phones and laptops out and teams have put their heart and soul into preparing [inaudible][00:22:38] thoughts and it’s just nothing one can really do about it, it’s just a macro thing that needs to be avoiding, speaking of investors here, and it’s definitely annoying to see that come up in board meetings in general.

William: Yeah, maybe put a basket by the door where everyone has to put their cell phone, who knows.

Krishna: Yeah, exactly, again, it’s a sensitive topic and managing that carefully is a good thing.

William: Got you. As far as raising money, right, so they have some money in the bank, they have some investors, maybe they have a board, but they’re looking to raise that next round, what’s your advice to people on how they communicate that? Obviously, it could be in the board meeting like you talked about to kinda get to the next leap or that inflection point, but maybe if the cash burn is going too high or they need to raise money before that, how do they communicate with their current investors that that’s gonna be the case?

Krishna: I think it really comes to this is why the [inaudible], what the next inflection point is and how long does cash last, this thing cannot be a surprise. It just needs to be part of an ongoing discussion with the board or the investors on this. And that’s been the key decision on am I burning too much money? Should I be slamming the brakes a bit? Should I give myself more time? Does the current composition of the company, the milestones I’ve achieved, is a sufficient [inaudible] or not?

Those are all critical discussions to be had with the investors because if people feel that’s not enough of a progress to [inaudible] money, you know, you’ve got tough decisions and potentially existing investors need to figure out do they wanna put up some money here to [inaudible] with the company to execute a little bit more.

So, I think that’s why it’s really, really important to have a common mind meld on what’s the next inflection point to get to before we raise money so that everyone’s the same sheet of paper, sheet of music, on that combination between cash in the bank, what does the next inflection point look like, when do we start raising money so that there are no surprises for people around the table.

William: Yeah, that makes a sense. The no surprises piece comes from, kinda like you said, having that ongoing conversation, that one or two people that you can kinda go back to on a regular basis that are in tune with what you’re doing as a business and then having that, sounds like that rational discussion around, you know, if we raise this much money, we can get to this point or we can prove these things, that type of approach is beneficial.

Krishna: That’s right.

William: And then as far as, you know, say they have a seed round investor and they’re looking for an A round investor, how involved does the seed round investor need to be in helping to find an A round investor?

Krishna: I think it should be in all rounds of investing, investors helping out is a very, very welcome thing. There are do’s and don’ts is a part of the process. The do’s absolutely are to reach out to your trusted other financing potential significant partners, introducing the company to them, telling them why this company is exciting and helping with the introduction and helping the company get a meeting is an important role investors play. What investors are not to do is to show up for the meeting because a potential new investor is betting on a team, is betting on how the team thinks through a situation, is gonna approach the problem.

The potential investor is not thinking about how the existing investors think through the problem because if that’s a problem and the existing investors are to be in the operating center of the company so I would strong urge existing investors not to show up for the meeting with prospective investors. That just colors the water in terms of what is the company’s thought versus what is the board of investor’s thought here, but at the same time, what people who they introduce the company to, it’s definitely useful to follow up with those investors, recall what was said, what was discussed in that pitch because entrepreneurs often interpret those signals in a very optimistic fashion.

But to [inaudible][00:27:06] how real is that investor’s interest, what should the entrepreneur be working on to address or not address that situation, you know, are all useful things to do, triangulate so the entrepreneur knows how much to prioritize that investor versus not. And help – it cast the story in a different light to make some more progress around the common things that are done here. So, it’s appropriate to provide kind of the [inaudible][00:27:36] commentary before and after the meeting but not actually physically be present at the meeting and to play interference on an active discussion between a prospective investor and the company.

William: Got you. So, you have your seed investor, they give you an introduction, you try to make sure that they don’t come in, but you try to make sure – to the new meeting with the new and potential investors, but you try to make sure that they don’t come to that but that they give ahead of time and afterwards kind of a download to those investors around their perspective but don’t, kinda like you said, mix up the emotions or the thought process of the new current investors in that meeting.

Krishna: Yep.

William: And then as far as – are there other things that people should be thinking about as they kinda transition let’s say from, you know, a seed round investor and working with them to kinda get that A round?

Krishna: I think it’s definitely one of the most important things we do, a bunch of seed investments here, right, a very important thing that we do here is to help the company with a pitch, how to tell the story both in terms of the macro inside the team’s origin as to why they’re qualified to solve this problem, the progress they have made to demonstrate product market share, etc.

We work a lot with entrepreneurs on the pitch, on the story, often before they go to the board, they come [inaudible] team here, maybe even a couple of times to get feedback so that we can polish the storytelling as effectively as possible, putting ourselves in the shoes of a prospective new investor before we put the entrepreneur on the road. I think existing investors ought to play an active role in helping package story before they go on the road. It’s a very important role to play.

William: Yeah, that’s a good one that I had not thought of yet so that’s definitely a good one to drive home to the listeners, helping leverage their current investor relationships because they’re looking at, like you said, a lot of at the macro level versus the CEO lots of times in the weeds, having to step back and get a little bit of help from their earlier investors to help tell a better story to the next set of investors as well.

Krishna: That’s correct.

William: Very cool. So, let’s talk a little bit about mergers and acquisitions. We had Neil Wachowski on not too long ago who was talking all about acquisitions. He’s been through three himself, three successful, several non successful he talked about as well as several on the acquiring side that he dug into a little bit in that episode if people wanna check that out.

But he talked a little bit about, you know, getting certain offers that were more serious than others. How do you view, as an investor, when do you wanna be informed of offers to acquire a company? Should it be every time? Should it be only when the manager of the team is seriously considering it? What do you think?

Krishna: You know a lot of flippant oh, I should buy the company type of things that happens and it’s important to calibrate the team on is it a real offer or not. And, of course, as a board member, you want to be involved in sometimes very actively in this process. It’s an extremely important part to play a very active role on.

But in general, it’s to be a good sounding board for the team on how to play that in a very careful way, how to play the chess game in a careful fashion, how to demonstrate strategic fit, how to get other buyers to the table and just how do you just play that game in a well-orchestrated fashion and guiding the team which might not have gone through the process before. It’s a really important value add that investors and board members can provide together.

William: Yeah, that’s a good piece of drive home as well. Like you said, how are you gonna play? It seems like investors that are in a unique position to have seen maybe multiple of these opportunities a year or every couple of years whereas an entrepreneur might have multiple maximum in a lifetime in terms of these experiences so definitely seems like something we should drive home to the listeners to leverage their current relationship with their investors to help them play that game, help them negotiate the offer, help them get more offers at the same time so they can maximize the liquidity event or the opportunity at hand.

Krishna: That’s correct.

William: Very cool, anything else on the mergers and acquisitions side that entrepreneurs should be careful of or think about when trying to make sure that they make the best decision and communicate properly with their investors?

Krishna: It’s nothing different from, you know, even getting financing done right. It’s always much, much, much, much, much more pleasant to get two parties at the table so getting a piece of paper from one, as unattractive as it is, gives you a very credible [inaudible][00:32:23] to go tell who might be your favorite dance partner, that you have credible offer on the table from another party. It always make you look prettier and so people working on setting up an auction, setting up a mechanism to get one more offer on the table however unattractive the terms might be significantly enhances the ability to close an attractive deal.

William: Yeah, very cool, so as we start to wrap up, are there any resources that you suggest our entrepreneurs check out if they’re trying to be or say try to increase their likelihood of startup success?

Krishna: Like the Startup Slingshot.

William: Yeah, there you go, Startup Slingshot’s all they need. Any other books or blogs that are kinda your favorite or that you tend to read more often than others?

Krishna: Not particularly. At least from our side, it’s such an experiential business and having done this for 16 years, this is what we think and dream board all the time.

William: Very cool, so if people wanna connect with you or learn more about your firm, how can they do that?

Krishna: Liveoakvp.com and can reach any of our partners here at first name at liveoakvp.com, plans@liveoakvp.com comes to all of us or they can follow us on our Twitter handles and LinkedIn. We are out there for people to reach out to us.

William: Perfect.

Krishna: We are as eager to talk to entrepreneurs as much as entrepreneurs to talk to us so look forward to hearing from people.

William: Perfect, I will put those links in the show notes of this interview. Krishna, thanks for joining us today.

Krishna: That sounds good. Thank you.