Overcoming Venture Capital Concerns about Team Members Who Are Also Family
Husband/wife, father/daughter, or other family member teams can be particularly challenging for venture capitalists. How likely is it that the best choice for a CFO (Chief Financial Officer) and CMO (Chief Marketing Officer) happened to fall in love and get married? It’s more likely that one half of the couple is a weak link. Another concern is that you’ll have more trouble working out differences because your relationship is more than business.
Although you may be confident that your relationship is secure and that you two work together very well and can keep the boardroom and the bedroom separate, the venture capitalist won’t be so sure. Following are the challenges facing the husband/wife or other family member combination model:
Letting the team/family member go: Family teams are often formed out of convenience and availability (and perhaps the availability of free labor). Although one may be a rock star, the other may not be the best person for the job. Just because someone is a great bookkeeper and capable of doing the accounting doesn't mean that he would make a good CFO. How do you deal with letting him go when the time comes? How do you deal with compensation? What if he argues that he can grow with the job? These scenarios are all turn-offs to investors.
Personal conflicts putting extra stress on the business: Professional couples can usually avoid boardroom and bedroom conflicts, but with so many other risks at play when scaling up a rapidly growing start-up company, venture capital investors don’t want to have to take an additional bet on whether your marriage will stay intact. When personal conflicts come into the business, everyone suffers.
Despite these challenges, having a husband/wife or other family team may make sense. In fact, many good companies exist that have been very successful with this model. However, when family members are part of the founding team, be aware that disclosure is important. You may not need to disclose relationships in the first meeting, but they should be absolutely clear from the second meeting on. Don’t wait until you’re weeks into due diligence to share these important relationships with your investors. To you, they may not be a big deal, but the relationships and how and when you reveal them are a big deal to the venture capitalist.