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In the Know?

The inside scoop on what should and shouldn't be shared with your VC.

Your CFO is having an affair with your office manager, and you're a little concerned about what petty cash is being used for. No one in your company wants to be in the same room as your CTO, and your vice president of engineering has laid down the ultimatum: "Him or me." Worse still, you know you're going to miss your revenue forecast for the quarter, but you have one last chance to pull it off with an upgrade from your largest customer--the one whose executive sponsor just quit and you don't know who's going to replace her.

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
Now, a VC doesn't ever want to hear the blow-by-blow of everything going on. The daily ups and downs of being the CEO of an entrepreneurial company are well documented; being an entrepreneur is an extreme sport. VCs are involved in multiple companies, so the operational details of each are often too much to process in any reasonable amount of time. And it's a huge burden on the CEO to provide such detailed information on a near real-time basis.

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.

Brad Feld is co-founder of Foundry Group, a Boulder, Colo., venture-capital firm specializing in early-stage information-technology companies, and TechStars, a startup accelerator.

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This article was originally published in the July 2009 print edition of Entrepreneur with the headline: In the Know?.

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