Some entrepreneurs believe they should treat their VCs like mushrooms--keep 'em in the dark for their own good. But the best entrepreneurs view their VCs as business partners and key advisors. The word transparency, while overused, is a good starting point.
When to Share
There are some vitals that you need to communicate to your VC no matter what, including:
. Fraud of any sort, or any suspicion of it
. Credible threat of litigation
. A fundamental concern about business or technology
. A major issue with anyone on the management team
. A major issue with any key partner or customer
Also, each VC is different. Some only care about the financial details. Others care more about the social elements of the business and the relationships between team members. Yet another category of VCs cares mainly about customers and competitors. The best VCs care about all of these things, including the ongoing mental health of the CEO.
As a VC, I don't ever want an entrepreneur or the CEO of a company I'm involved in to withhold information about anything. At the same time, I don't expect them to give me every detail about what's going on. Instead, I prefer a culture of openness. Give me access to any of your management information systems that I want; I'll probably use them often. Make sure your executive team feels comfortable talking one-on-one with me; I assure you that I'll be careful in my responses and won't undermine you. E-mail me regularly with status updates and any information that you think will help me understand what is going on in the business. Pick up the phone and call me whenever you're really concerned about something (e.g., the stuff in the first paragraph), fill me in, and ask me for my advice on how to approach the situation.
The simple answer to the question "What shouldn't I share with my VC?" is "nothing." But the converse isn't necessarily true, as "sharing everything" is likely to be overwhelming to both you and your VC--and fundamentally unproductive. Spend time understanding the best way to communicate with your VC; we are an opinionated bunch and will usually tell you directly the best way to interact with us. And remember to always shine a bright light on both the good and the bad things going on in your business.
Brad Feld has been an early stage investor and entrepreneur for more than 20 years. He is a co-founder of Foundry Group, an early stage VC firm. Brad blogs at feld.com and askthevc.com, runs marathons and lives with his wife and two golden retrievers in Boulder, Colorado, and Homer, Alaska.