Three tips for building a strong founder-funder bond

Ben Reynolds is talking to me from a log cabin in rural Maine as he holidays with his visiting Kiwi parents – a welcome break for the 29-year-old CEO of New Zealand-founded, New York-based Spalk, which he co-founded with fellow Auckland University graduate, Michael Prendergast in 2015. 

Spalk’s virtual commentary studio makes it easier to produce sports commentary globally that’s customised to unique and local audiences. Its first investment round was led by Icehouse Ventures and the company has now raised a total US$4.5 million with backing from US investors and sporting heavyweights including Steven Adams and Greg Norman. It has set up a Delaware-registered company and shifted headquarters to the US.

Caffeine talked to Reynolds and Icehouse Ventures CEO Robbie Paul about how founders and funders nurture their relationship.

How did you meet?

BR: I interned at Icehouse during my university days, so this is winding back the clock as a fresh-faced first year at Auckland University when I was doing my BCom. I was interested in this idea of entrepreneurship and innovation and all those sexy buzzwords. I had done the Young Enterprise Scheme while at Westlake Boys’ High and the CEO of that scheme introduced me to Robbie Paul, who found me an internship. My first job there was going through this 40,000-row spreadsheet of every investment that Ice Angels had ever made and correcting spelling mistakes.

When the Spalk journey began it was a group of me and my friends and we did a family round to help us pay for the first 12 months of ramen noodles. When we got our first paying customers and started to see there was an inkling of a business idea we said ‘hey, let’s get some capital to help resource the growth of this’ and our first phone calls were to Robbie and Greg [Sitters] at Sparkbox Ventures [who Reynolds had previously worked for]. Having seen both sides of the fence it was great to be able to shortcut any issues around cap tables and all those fun things because we really had our i’s dotted and t’s crossed when it came to raising capital that first time.

RP: Ben was an intern for us in 2012 or so, at the point when we were just a small angel community with our first fund raised. It was our third fund that led the investment into his company. I don’t want to portray that we invest blindly but investing in seed-stage companies is biased towards the individual and it means a lot to have a longstanding relationship with that person. He’d worked with me and then Sparkbox Ventures and other startups before starting his own company and the overall concept was agreeable so we were keen to invest in him and see how it would go.

I grew up in the home of Michael Jordan and when you do that, basketball is aired on national rather than local TV in the US. All my early life we’d turn on the game and mute the TV and listen to the commentary on radio by local commentator Woody Durham who was biased, gave it context, knew the players well, had watched them grow and had fire in his voice when he spoke about them. When Spalk talked to us about democratising sports commentary I knew exactly what the problem was they were trying to fix.

How much contact should founders have with their funders?

BR: Investors are always looking at the lines, not dots with relationships. Robbie had seen me performing in a variety of roles and had a lot of data points over a period of five to six years. As we’ve grown, we’re keeping in touch regularly, not just with existing investors, but with people who we would like to have an awareness of us in the future – whether it’s acquirers, future customers or prospective future investors. 

It’s not just showing them that every quarter we’re hitting our revenue targets; we might be running into a growth challenge here or there and maybe we can ask them to help. About 12 months ago we were having a really hard time on collections and accounts receivable and had let our investors know we were drifting up towards 60 days of receivables outstanding and could anyone connect us to people who could help? I heard straight back from Robbie with an introduction to three founders who were selling similar-sized enterprise contracts where they were straight away able to share the wording they use in their contracts to minimise accounts-receivable risk. There was no need to sugarcoat our problem for people who we were comfortable to be candid with. 

RP: When people build strong working relationships it can often extend into strong personal ones but that doesn’t always mean you have to be best friends and go out at the weekend with all founders. It’s a bonus if you can spend time together in a social setting and really enjoy it. Ben has even cooked the BBQ at my best friend’s stag do. 

If founders believe they can get value out of an investor and want them to engage then they have to be informed. I appreciate it’s a difficult challenge with quarterly metrics but you need to also have contact informally around the nuanced challenges and stresses that give insight to those metrics and make them useful. Nine out of 10 investors will be inclined to help but in order to help, they need to be informed of how the business is going. Effective reporting is a learned skill.

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Is the relationship like a marriage?

BR: It’s similar. We’ve really tried to treat how we’ve built our cap table as an assortment of marriages. Every startup on day one thinks this is going to be easy and in three years we’ll be selling this for a billion dollars. But here we are, eight years in and we’ve just crossed the $5 million revenue threshold. It takes a reasonable amount of time to build a business and you have to treat your cap table as you would look at any long-term relationship – who I want to be in the trenches with every single day and not somebody who I view as a transactional source of capital. You want to build a cap table that you actually want to work with and you enjoy going to with both good news and more importantly, bad news and saying ‘we need help on this’. 

Outside of Icehouse, the majority of our cap table is family offices, professional sports team ownership groups in the US, or professional athletes who are investing in sectors they have deep expertise in and want to stay very close to their investments and support them with introductions throughout the process.

RP: I acknowledge the lopsided nature of the relationship where one person is working all day and night and will be materially impacted if it’s not successful, while an investor has their money across a number of investments and won’t be materially impacted financially or reputationally if it fails. Investors put pressure on founders to communicate better but the number-one reason some don’t is because when they do, they don’t get any response. Investors need to take two minutes to read the reports and replay so entrepreneurs know their reports are being reviewed.

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Tips for founder-funder relationships

Ben Reynolds

1. ‍ Be transparent on both sides: You have to be transparent and upfront about what’s going well and what’s not going well. The flipside is also true for investors who have to be upfront and transparent with us about where they are in their investing cycle, how much capital they have left to deploy, and where they see us in terms of a cash flow event in the future.
2. ‍Do due diligence calls on investors: Ask to talk to three other people they have invested in to get feedback on them. This is not something most startups do, as often the investor-founder relationship is viewed as a one-sided David and Goliath matchup, but I think founders, particularly in New Zealand, don’t put enough value on the time and effort we’re pouring into our businesses.‍
3. Don’t rush into things with an investor: We’re eight years in and we’ve probably got another two to three years before we’re starting to see a likely liquidity event, so 10 years or so is a long time to be in a relationship with another group. Make sure going into it you’re aware of who they are, how they operate, and what their long-term plans are.

Robbie Paul

1. ‍Be consistent and give context: Founders need to have consistency in their quarterly reporting and timely soundbites make a big difference. 
2. ‍Maintain personal contact: Don’t underestimate the power of meeting in person or a phone call whereas your email inbox is only someone else’s to-do list that they put on you. In a phone call you can cover way more ground in five minutes and get candid feedback.
3. ‍Ask about investors' expectations: Founders should be provocative with their investors and ask them ‘what do we need to do to double our valuation in your eyes and continue investing in us?’. If you’ve given someone the opportunity to state what they need and that’s achieved, it’s more powerful than founders trying to achieve what they think you want.

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