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An EIR's Perspective Working at Immigrant-Founded Startups
with 5 tips for investors and venture capitalists
An Entrepreneur in Residence (EIR) is not a well-known role. In fact, when I say that I’m an EIR, most people ask me to explain what this means. Traditionally, an EIR is an entrepreneur that holds a position at a venture capital firm and temporarily works with portfolio companies as a full-time team member. Oftentimes, an EIR is an entrepreneur that is between projects or has recently exited from their own company.
This role can be vital to VCs by helping create practical value for portfolio companies, build a relationship of trust with founders, and avoid unpleasant mistakes.
Taking a business off the ground is phenomenally hard; in fact, it’s reported that up to 90% of startups fail. While many partners at venture funds have exceptional firsthand business experience, by nature of their current focus, they are primarily wearing “investor hats”. An EIR can bring a unique perspective by physically diving into a portfolio company and seeing things with an entrepreneurial eye while keeping in mind the interests of the fund.
This can be especially relevant for startups founded by recent immigrants, as they are building their company in a new business environment and can appreciate practical help in hiring, implementing sales strategies, finding partners, and fundraising.
From my experience as an EIR at immigrant-founded startups, here are some of the things that require subtlety from investors:
'“Change this management team” or “hire this particular candidate”: Founders and CEOs have the best visibility on who is apt to run their business. Pressuring to replace members of the team or insisting on an external candidate can ruin a fragile team balance. Whether a business makes it through the early stage is defined in large part by the “glue” of the team – is there enough drive, motivation, and passion of the combined team to take a startup off the ground? Avoid breaking that glue.
Going crazy over revenue growth: External pressure to grow fast will almost always divert the focus of the management team from building internal processes that enable a business to retain customers in the long term. Hypergrowth for which the team is not ready opens up an abyss of possible mistakes. Speed should be defined by the team's ability to digest market demand without ignoring business processes. I’ve seen investors push for growth aggressively and inexperienced founders succumbing to this pressure, which backfired into business crises or bankruptcy.
Ramp up marketing spend to gain market share: It is tempting to ramp up marketing — investors often push for that. When customers are acquired quickly without understanding customer lifetime value (LTV), it creates cash flow risks that can easily become deadly. Young entrepreneurs are optimistic. They really want to show traction to their investors and, 99% of the time, cash flow risks are underestimated. As Intel’s founder, Andrew Grove once put it, “only the paranoid survive”.
Sell to this buyer: If there is more than one potential buyer for the business, investors may naturally push for the one that could bring the highest multiples. I’ve seen investors urge entrepreneurs to sell for the wrong reasons. This is another pitfall that can be costly. Entrepreneurs should have the ultimate say in how and when they sell their businesses.
Shut down this business unit: Some business units may not generate a majority of revenue but be fundamental for brand positioning or customer acquisition. Advice such as “shut down this business unit to slash costs'' could end up tipping over the core business. Of course, VCs should keep a close eye on costs and bring up red flags, but unless they’ve worked inside the business, it may be hard to gauge the real value of a business unit.
Running a young, cash-strained business is like being an acrobat on a rope performing for a doubtful audience. This is especially true for immigrant founders, who are doing this in a new environment. To help them succeed, sometimes the best thing is to provide a resource that will work with the team and learn the ropes internally.
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