On very rare occasions, we are approached by someone other than the CEO in the capital raising process. This is fine initially. Sometimes it might be a Board member or investor or other mutual connection making an introduction. However, it raises eyebrows, particularly if the CEO had a prior connection to us.
I posted a question on Quora to solicit some other perspectives and to dig deeper into what other investors do and how they respond when they get a capital raising approach from someone other than the CEO.
- Investors want to meet with the leader. Leo Polovets, a partner at Susa Ventures notes, “The CEO is the key person that the VC will be working with over time, so evaluating alignment and chemistry is important.” At Pique Fund, we invest in small equity positions and currently, we often do not get Board seats. Our relationship with the CEO is key to maintaining a high level of trust and transparency, adding value to the venture directly through our relationship as a trusted advisor, and for monitoring our investment.
- The CEO, at the very least, needs to be physically present at the pitch or meeting.
- It’s part of the CEO’s job to ensure the business is appropriately capitalized. When CEOs dislike capital raising and don’t engage at all in the process, it’s a red flag. Ensuring the business has enough and the right type of capital to operate and grow is the CEO’s responsibility. If they don’t show up to meet investors and feel they have other priorities, that is a red flag.
If there was a true scheduling conflict or emergency, investors are likely to give the founders and CEOs the benefit of the doubt and may proceed with a meeting without the CEO initially. As David Rose notes in the comments, it is such an unusual situation for a CEO to be absent for an investor meeting, that it would be the first issue addressed in a meeting. For most investors, the general consensus appeared to be that a CEO’s absence in the capital raising process is a negative enough signal that the venture is a bad investment opportunity.
As an investor, if you encounter a situation where the CEO is absent in the capital raising conversation, address the issue immediately. Invite the CEO to attend the meeting. If there is resistance or refusal, you may want to inquire why. However, proceed with utmost caution – it is an early negative signal and is not a great way for an investment relationship to start.
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