Why paying attention to investor backchanneling is a good call

When I was a founder, I knew that all VCs talked to each other. But boy, do they really talk.

If you’re meeting an investor, you should assume that whatever you show or tell them is going to become public knowledge. After all, investors do their homework and call up references.

Photo credit: Alex Andrews

This is also to say that if you present something that is not truthful, it will kill a deal. A common example of this is when founders list down an investor who has not yet signed on as a customer on one of their fundraising slides, or when they name someone as a mentor who isn’t actually an advisor.

You can bet that an investor will call up any or all of the people you put on your deck.

So even if you are close to signing a deal or already have a verbal agreement, you need to be crystal clear with the investor that the people on your deck are not customers or backers yet.

Another common backchanneling method is when prospective new investors get in touch with existing investors to get an opinion about the startup.

In my current role, I spend probably two hours per week doing backchannel calls about my portfolio with new investors who are thinking about putting in capital. This is the pitch that no one really talks about.

There’s a lot of discussion around founder pitches and how to structure those. But investors – especially early-stage backers – also do a lot of pitching on behalf of their portfolio companies once they get close to sealing a deal with a new investor.

It’s also important for early-stage backers to be able to sell and pitch well.

But what really happens in these calls?

The prospective investor is often much more candid about their thoughts and concerns on the company they’re eying. In many ways, this makes it easier to address the issues. However, it gets harder for me to pitch for a portfolio firm when:

• I haven’t heard from a company in a long time.
• I don’t feel like I actually know what is happening in the business.
• The founder was rude or did something inappropriate (either to me or others).

This is where founders have the opportunity to knock these indirect pitches out of the park by keeping their investors in the loop with good communication and updates. It doesn’t mean delivering rosy news all the time – it means giving your investors fodder to use when pitching your company.