Being a transparent leader during fundraising
A friend of mine showed up at work one day at his Boston-based biotech startup and his CEO told everyone that they’d run out of runway; everyone should go home. There was no money for severance or anything; everyone was just suddenly unemployed.
Needless to say, this is not how to lead a fundraising process with your team. Let’s call this a “Zero Transparency” leadership approach. On a scale from 1-to-10 scale (where 10 is being completely transparent), this particular CEO chose to share absolutely nothing with his team about their financial situation.
A Zero Transparency approach is not respectful or fair to your team. They’ve all taken on risk of some sort to join your organization and you owe them the decency of warning them when you get towards the tail end of your funding. That way your team can begin to network and find opportunities in the event that you need to make hard decisions in order to stay afloat.
As soon as you tell your team that your funding is getting that low, you do run the risk of losing top talent to other more securely-funded startups. You always have to think about the long-game when you make decisions that impact people and their livelihood. Having a reputation that you are a fair leader who cares about their team - that’s worth everything. Think about your next startup. You don’t want the rumor-mill churning that you didn’t do right by your team; you want to make sure that your ability to attract and retain talent down the road is not impacted by the decision you make under duress right now.
I encourage clients to decide, as they begin the fundraising journey, when they will alert their team if runway begins to shorten. As a leadership team, you can keep checking in to see if this milestone still makes sense as more context evolves.
Clients often ask me: “Should I alert the entire team that they should be more cautious with spending? Should we stop doing happy hour to extend the runway?”
I think it’s a smart idea to host a Town Hall meeting to alert your team that the fundraising process is about to kick-off and we’re going to be more cautious, overall, with our spending over the next few months. You don’t want to cause everyone to freak out and become paranoid about buying essential items. Instead, you may want to have a light touch conversation with the whole team - and then talk more specifically about guidelines for spending with a few targeted people on the team who approve budget requests and oversee your teams that have high expenditures.
There’s a fine line in fundraising between appropriate and unnecessary transparency. What does the entry-level lab technician need to know? What does your CSO need to know?
I’m going to suggest that you do not want to be fully transparent during the fundraising process with your team. This is the burden of being CEO. Your job is to buffer your team from this wild emotional roller coaster. The highs are intensely high (they seem really into us!) and the lows are pretty devastatingly low. You don’t want to pull your entire team way down into the valley of despair with you - it’s a huge distraction and morale killer. You may not even want to bring your co-founder on this entire journey with you either.
I often tell clients that leading your team through uncertain times is like the time I took my son hiking in the woods during a lightning storm. I hadn’t checked the weather before we left and we got stuck in the middle of a very localized storm. As the storm passed over us, I was fully aware of how much danger we were in - but I didn’t want my son to know exactly how close we were to the eye of the storm. If he was fully aware, he might get too scared to move quickly towards safety. I had to tell him just enough so that he understood that we had to pick up our pace - and I assured him I was doing everything I could to keep us safe.
With this in mind, consider instead hosting a fundraising kick-off meeting with your whole team. In this meeting you can share your pitch deck with them, talk about your overall strategy, and answer any questions the team has about fundraising. Most people who work at early stage startups don’t really understand how the VC fundraising process works so assume that you are talking to everyone as novices.
When you have this meeting you can tell your team what to expect from you during the fundraise - what meetings you will be attending and who to go to while you sprint to handle diligence requests and calls. You can let them know that you will give them an update during the first week of each month and that you will let them know when you have [fill in the blank] months of runway left and/or a signed term sheet - so they don’t have to worry and wonder what’s going on. You may also want to be honest about why you aren’t going to be sharing much more than this as well.
When I think about life in an early stage technical startup, I often separate out time into two modes: fundraising (war time) and everything else (peace time). Fundraising is definitely a different period of time for every leader. Because of this, your leadership style may need to shift a little. You may need to remove yourself from the team a bit as you meet with investors and go through the fundraising journey. It’s important to think about who will be your support network during this time. These people can’t be on your team - they have to be people outside of your organization - friends, partners, spouses, colleagues, and coaches.
You have to do the hard work to manage yourself as a leader during this time so that you can show up with realistic optimism for your team. While there is no clear line of how transparent to be at any given point in the fundraising process - ask yourself what is helpful for others to know because it impacts them and the company…and what you want to share because of your own needs and wants during this time.
When in doubt about what to share with your team and how to share it - ask a trusted mentor or two and then decide for yourself. There are rarely right answers here and you have to figure out your own transparency compass as a leader.
