Setting Expectations

Adviser/Investor Expectation Setting


After starting 7 technology businesses in North Carolina, David Gardner started Cofounders Capital in 2015. “I have reached a point in my life where my work, leisure and charity have all become interchangeable and indistinguishable to me. I am always happy to talk with entrepreneurs and to help them if I can just as so many of my mentors did for me over the years. If our relationship proceeds into that of an investment and formal advisory role then my involvement becomes much more than an occasional phone call, introduction or coffee.”

The purpose of this document is to provide an overview of what it is like to work with us as investors/advisers. It provides insights into what we typically do, how we think and hopefully, it will also serve to set appropriate expectations should we decide to work together. Each company we work with has different needs and each management team has varying skills and knowledge gaps. We tend to focus on filling in those gaps. For example, if the management team has strong sales and marketing expertise, we may focus our time more on building the technology team and product or vice versa. There are some things that all of our entrepreneurs seem to need to some degree.  These fall into the following categories.

Raising Funds

Today, the rule is “don’t run out of money”, so one of the first things we do is to model the business with the management team to achieve and maintain a cash flow positive state. We’re not opposed to raising more money when that makes sense, but believe we should always do this on our terms from a position of strength and not desperation. In today’s business climate, it is simply too risky to use up all of your resources in anticipation of a future funding round. There are many ways to get additional working capital that do not involve diluting the equity of the founders. Customers are often willing to fund R&D projects in exchange for special pricing or terms. Channel partners are sometimes willing to purchase certain rights such as territories or exclusivity to certain vertical markets for a time. The best way of all to generate working capital is fast organic growth, which is achieved foremost by getting your product and sales model right as quickly as possible.

When we do raise additional capital, then we typically try to find strategic investors over purely financial investors. Strategic investors are customers, integrators, resellers, suppliers or other business partners that consider what we do to be a major benefit to their core business. They tend to offer better terms than a purely financial investor and bring much more to the table by way of advice, referrals and other industry specific insights. Each deal is unique and must be negotiated carefully to maintain maximum flexibility for the company in the future. We measure our success as an adviser with one eye on the growth of the core business and the other on how much equity the founders are able to hold on to through that process.

Financial Modeling

Modeling a new venture as accurately as possible provides the insights needed to successfully surf the edge between growing as fast as possible and not running out of money. It is a little predictive science and a lot of educated best guessing. We work with the team to model all aspects of the business, breaking out important assumptions onto a second spreadsheet tab. There are many great discussions that this exercise generates around pricing, costs, sales cycle, customer churn, receivables collection time, when to hire, etc. A big part of this process is to acknowledge what we don’t know and to hunt down reasonable starting variables. This is achieved sometimes by evaluating proxies from other industries or similar product offerings and through focus groups, interviews, etc.

In the Art of War, Sun Tzu said that no battle plan survives the first arrow. I’m not a big fan of a detailed written business plan which always seems obsolete a month after it is written, but I’m a huge fan of a detailed spreadsheet model; a living document where the logic behind every number can be explained in detail and updated as needed. We can do a polished written plan if we need to impress some venture capitalists later on but those with the scars from many hands-on battles will tell you in the early days to save your precious time for the spreadsheet model.

By “living document” we mean that we encourage entrepreneurs to establish the discipline each month of overwriting the monthly forecasted cells with actual data. For example, once we have the real numbers for the month of March, we overwrite the forecasting equations in these cells. Then we look to see if our assumptions should be updated in light of the new actual data points.

We will find that certain assumptions are not that critical but others can dramatically change our outcomes, so these are the ones we need to pay very close attention to, run what-if scenarios on, and have a few contingency plans in our pocket.

Over time the spreadsheet model can become amazingly accurate. We sometime refer to a mature model as our “crystal ball” because it clearly shows us our most likely future. Sometimes it encourages us to be more aggressive with new hires and marketing and other times it warns us to proceed with a slower and more cautious approach. Making high risk decisions with limited information is scary and the main reason why the faint of heart don’t start companies, but a continuously updated model can be the precious instrument panel that enables us to fly our young company through the dark and unknown.


A startup can survive and fix just about any problem, but a lack of sales will end a new venture faster than any other adversity. Getting into selling early on is critical because it allows us to test our message and value propositions and it provides us with the runway we need to fix all of the other problems we will encounter. Enterprise sales and sales management is David’s particular forte. We begin by working with the management team to develop and refine the master sales deck. We spend a lot of time on this deck because our website, sales literature, marketing campaigns, scripts, etc. will all flow from this master message. Making this message crisp and clear takes several iterations. It is a function of who we are selling to and how we position our message against competitors. Word connotations, images and speaking notes must be pitch perfect because mistakes made here will flow to all other material.

A competitive comparison grid is usually developed whereby we select and name the comparison categories that position our offering the best. If we create the right categories then we should be at or near the top in each. We are strong believers in the second rule of marketing: “if you are not first in a category then change the category”. We believe that most intelligent sales persons will be successful if we give them the right collateral to use and protocols to follow.   They need a master deck, competitive analysis, objections handling responses, qualified leads and other resources. The selection and use of a CRM like® or SugarCRM® is almost always a necessity. Successful companies follow their sales protocol religiously and this gives management the metrics they need to understand their sales cycle, coach their sales team and forecast their cash needs. Unless it’s a big sale or strategic partnership, we are typically not the person making sales calls but a big part of what we do is to silently listen in on remote sales presentations and take notes that can be used for coaching and message improvements.


Marketing is the lifeblood of sales for most businesses. I often advise, “It’s easier to find hungry people than it is to try to make people hungry”.  Marketing is the art of finding those prospects most receptive to our message and bringing them into a discussion with sales.   Although marketing dollars effectively spent on the front end are far more beneficial than dollars spent late in the game, marketing can, unfortunately, be the black hole of precious startup resources. We help the management team avoid this before spending any marketing dollars by developing a customer profile. Who are our decision makers? What are their job titles? Who influences them? What do they read? What conferences do they attend? What thought leaders do they follow? How do they use social media? Can we use a targeted mailing list, etc.? We gauge our marketing spend based on how addressable the market is and how confident we are in our profile. Much of marketing is trial and error so it’s OK to make small mistakes, send up trial balloons, etc. so long as we always track results objectively. In the early days of marketing, we tell entrepreneurs that if you can’t track it, the rule should be, don’t do it. We won’t have the resources to do big image building campaigns so every marketing dollar spent needs to be tracked back to sales. There are many free and near-free tools that can be used such as email campaign management to track open rates, A-B testing, etc. Other packages enable automated hosting of webinars, website analytics and many other inexpensive but must-have tools.

Sales Collateral

Enterprise B2B sales are best achieved by positioning yourself as a consultant rather than a sales person. One way we encourage this is to assist in the development of a formal whitepaper discussing a best practice, key risk factors, etc. It has to be objective and academic in tone but the trick is this: if the reader agrees with our logic then we have won tremendous credibility and often a sale. If we position this paper well then the only way the reader can implement that best practice or avoid those risk factors we discuss is via the use of our solution. The “manifesto whitepaper” is key to positioning the company as a valued consultancy and the author as a subject matter expert. It can be leveraged to get free speaking opportunities at conferences, interviews with influential analysts and all sorts of other valuable press. It can be re-themed for different verticals. I’m not sure why, but entrepreneurs are often reluctant to spend the time required to write such a paper. Regardless of who writes it, it should always be attributed to the CEO if he or she is the main company spokesperson.

Getting key customers to agree to a jointly published case study or webinars is also an extremely valuable tool. In both lead generation and lead nurturing campaigns, the offer of reports, comparisons and other valuable content is critical. Good marketing doesn’t have to be expensive it just has to be good.

Product Management

Even a seasoned software developer can struggle with product management because is a very different skill set than coding. We can spend a lot of money building in features and functionality that do not really create more value for our target markets. I propose a methodology that helps teams manage the value (sales benefit) of each proposed product feature against the cost (R&D time). Most startup teams think that their product has to include much more functionality than it actually needs before they can start selling it. I encourage teams to avoid scope creep and get to a minimum 1.0 release as quickly as possible. It can be sold as a “beta” to set customer expectation. There is a catharsis in actually selling what you have and it most often leads to many great changes to design and prioritization that would not have happened had we not sold a minimalistic version first. Beta customers are eager early adopters, who, with proper expectation setting and careful listening, can become your greatest asset in building a great product and your most loyal references.

Unlike a written business plan, a written detailed product spec is an imperative. In many cases as much time should be spent writing the product specification as is spent actually writing code. The problem with developers is that they tend to give you what you ask for. Every use case must be considered. The business uncertainties and the specifications must flow together. What if we decide later on that there is a better market for our product or that it should be dumbed down to web self-service model? Would the current architecture support that? Changes in spec take minutes to document. Changes in a product months or years from now can take many weeks or months to implement because they involve supporting the existing release while making a new one and mapping current data to the new structure while the product is in use. Coders refer to this as changing the tires on the truck while going seventy miles per hour.

Product management is an ongoing process. We have to make sure that we honor a process that insures that what we learn in sales and marketing gets applied to the product road map.   This is where the magic happens.

R&D Management

Beyond product management, many teams need basic blocking and tackling help with how to manage developers, deadlines and architecture. We often recommend free or near-free tools to manage code revision, the QA cycles, production system monitoring, etc. There can be many tradeoffs and compromises to evaluate as we consider what platforms and functionality to support. Seemingly small design and architecture changes in the early days can have a huge impact down the road.

I am passionate about the user experience and interface. Having managed literally hundreds of R&D development projects, I have seen about everything that can go wrong and try to help the team avoid at least the most common mistakes. Many start ups with non-technical founders choose to outsource their R&D. I almost always push for an internal team as soon as possible. When coders build a house that they know they will have to live in, support and build onto, they almost always do a better job and there is less loss of your core knowledge base over time. From day one, there needs to be a coding methodology that ensures a product that is secure, efficient, extensible, scalable, robust, modular and well documented.

Business Development

Very early stage companies, in our experience, tend to spend way too much time thinking about business development, partnerships and reseller channels. They view these as almost a silver bullet to scale their business. Although we’ve worked with some notable exceptions, usually very little value comes from these until the company has grown more organically. We generally only want partnerships with organizations that have a large sales channel and customer base to bring to the table. These companies rarely want to spend time talking to an early stage, unproven start up. But there are a lot of small companies and individuals who want to work with you at this stage. They want to meet and talk a lot and spend weeks negotiating revenue shares, complex contract terms, etc. They seem to think that you are their silver bullet. In my experience, 90% of these prove to be nothing more than a costly distraction. In the early days, your model and offering can and should move around some. Until we are experienced in selling our product ourselves it is extremely hard to get others who don’t work directly for us to do this well. There are some, well-connected individuals who can and should be put on a referral agreement but these can be done quickly from a template document. There may come a time for channel building and when that time is right there are many techniques for negotiating good partnerships. For example, we will want to try to compensate those re-selling for us directly if possible. Even large companies forget that whoever is controlling sales compensation is actually controlling the sales force. Territories and some exclusivity can be judiciously traded for upfront cash provided minimum revenue levels are defined and required.

Vendor Management

One of the things we try to do for the companies we advise is to give them confidence that they don’t need to spend tons of money with a lawyer, CPA or other vendor every time they make a decision or need a template document. Over the years working with many different attorneys, we have collected and revised a library of common templates ranging from employee contracts to click-through customer agreements that can usually suffice with a little modification. We encourage management teams to never turn an attorney loose on a project without a set not-to-exceed budget. These services should be purchased in predetermined hourly chunks for the purpose of reviewing our work rather than to create things from scratch. We also have relationships with contract bookkeepers, marketing consultants, graphic designers, etc. who are exceptional and very cost-effective working hourly as needed. Most startups don’t need a CPA for anything other than year-end taxes. With a well thought-through starting chart of accounts, all that most startups need initially is a monthly visit from a good book keeper. In general, I encourage startups to avoid the cost in both time and money associated with the trappings of doing business. These things aren’t the business and don’t grow the business. They should simply be viewed as administrative paperwork and moved aside as quickly as possible.


Our job as advisers is to make ourselves unnecessary. We do this over time by finding, vetting, funding and recruiting superstars who can do their particular job better than me or the original management team. Good recruiting is very time consuming and using staffing agencies and recruiting firms can be very expensive. Past performance is the best indicator I’ve ever found of future performance, so we keep a database of A-team candidates. The productivity of a coding superstar, in my opinion, can be up to four times that of a typical coder, so paying him or her a third more salary is a great deal. I give the management teams I advise key interviewing questions and techniques to use when talking to candidates and especially when speaking with references. Making a bad hire is always painful but it is especially costly in a startup where senior management is often doing all of the hiring and training. Life in a startup is usually governed by “go as fast as you can” but when it comes to hiring I encourage teams to slow down, take your time and interview several candidates. The one exception to this is for the sales superstar. These rare birds aren’t often available and they don’t stay available for very long so when you have the chance to hire one… just do it. I have never regretted making a position available opportunistically on such occasions.

Organizational Development

Successful entrepreneurs are typically movers and shakers by nature. They are most often ambitious type-A personalities that move fast and get things done but these beneficial traits can also work against them when it come to the seemingly slow and inefficient tasks of management, responsibility delegation and building a desirable team culture. What we can get by with in a small team can become a major problem as a venture grows. We almost have to be a bit of a control freak to get a company going and we have to learn to get past that if we want to grow our company beyond what a small team can do. This is a necessary evolution but one that often puts stress on the management team and organization as our daily routine begins to switch over from what we can do directly to what we can manage and inspire others to accomplish. Many founders do not make this transition successfully.

I’d like to think that I help ease this transition by encouraging the management teams, when the time is appropriate, to take off certain hats and to assign them to others. This is the inefficient but effective art of management. It is the process of defining stewardships, goals and metrics, expectations and a review process. First time entrepreneurs often view their company as their “baby” and it is extremely difficult to learn to trust others with your baby. As an adviser, I am usually in a good position to help the team through this transition. We establish job descriptions, define success metrics and merit-based compensation plans. I emphasize how important it is to over communicate with staff. From sales training materials to the company policy manuals, I help with the infrastructure of scaling a business and I constantly remind the management team how important public rewards and recognitions are to their culture and team morale.


I make a big distinction between management and leadership. Management is like providing the tools, process and plan to most efficiently cut down trees. Leadership is the thought process that insures that you and your team are in the right forest. I often say, let’s fight the easy battles first. I try to get the management team to stop thinking tactically at least once a month and think strategically which can be a real challenge in the heat of day to day battle. I ask, “Have our experiences this month confirmed or caused us to question our target market, sales strategy, product roadmap, etc.” What are our competitors doing? Where is this industry going? I started seven ventures in a row and grew them all into good exits and returns for my investors but I’m quick to admit that the plan in place when I exited often had very little in common with the original business plan. There are good accidents that happen along the way and you learn things. We don’t fail…we just successfully discover what doesn’t work and apply that knowledge. I encourage the team to slow down occasional and play the “what if” game with me. Question everything. Big companies have more people, more technology and more resources than we have. Our only advantage is that we can innovate, try things and change direction hundreds of times faster than large organizations. So I encourage entrepreneurs to iterate, learn, modify and apply as quickly as possible because this is our greatest asset as a startup.


This will sound corny, but we are sometimes the conscience of the management team. Climbing the face of the mountain is hard and it should make you a little callused but never ruthless. Winning at all cost is not winning at all by my definition of success. While in the fray we have to make sure that we do not forget that who we are is different from the job we do. People follow integrity and competence. Like the wings of an airplane, one without the other is futile. Leaders are thoughtful and careful with what they say. They think about things before they respond because they know they are often establishing policy or at least precedence when they answer a seemingly innocuous question from one of their staff. Integrity only manifests itself through actions. Leaders are mindful of their promises. They are always being watched. Our people see how we treat that person who is about to be let go. They see how we deal with business partners and customers and our people rightfully assume that they will be treated no better. The leader that people want to follow is the one who occasionally takes a stand and says, “We don’t do business that way here.”

Philosophy on Advising

Many advisers view themselves as the source of all wisdom and actually take offense when entrepreneurs disagree with their counsel or choose to go a different direction. We have all been entrepreneurs a lot longer than we have been advisers and investors so maybe this is why we tend to view things differently. We like having advisers, especially specific subject matter experts, and often recruit them for my portfolio companies but the truth is this: no one will ever know your business as well as you do. You live it every single day. You think about it as you fall asleep each night. In a short time, you will have sat through hundreds of meetings and witnessed firsthand the exact moment when a prospect’s eye brow raised or forehead wrinkled. No adviser is living this the way you are. You are the best and most qualified person to make the hard calls in your business. We challenge our entrepreneurs. We ask them to review the metrics. We may even tell them a sad story about how we once screwed up doing something similar but in the end we encourage that entrepreneur to go with his or her gut. Listen to all wise counsel and debate the hell out of big decision but then make the call that feels right to you even if you can’t explain exactly why. Regardless, once you make that call, it’s the right call and any adviser worth his salt will honor and support that decision.

Time Commitment

How much time does it take to be a good adviser? Well it takes all of our time. For the first few months we tend to spend up to a day a week onsite with a new team and we exchange calls, emails and documents almost daily. Most of our value is realized during that critical first year. By the second year, we kind of have things in place and running along so we tend to meet only once a month or so in person. By the third year, the team is wondering why I’m still hanging around! This is a good sign and one I don’t begrudge. Even a few years in, there are still key moments when I tend to spend a lot of time with the team such as when major decision are being contemplated such as a partnership, a critical hire, strategy change, exit or capital raises. I speak on the phone and exchange emails with my founders weekly.


We buy our equity up front. We believe the best advisers have real skin in the game and we only invest in ventures where we know that we can add value and help fix the things that might jeopardize my return. Unlike many venture capitalists holding the entrepreneur’s feet to the fire at board meetings, we view ourselves like a cofounder, but one without founder’s equity or salary. We accept no salary for our efforts, just the opportunity to reap a reward proportionate to our cash investment if and when we make the company successful. Our equity stake is established at the onset to avoid having to purchase back the success that we helped to create. It is a truism that once services are rendered they are often highly devalued and it was Albert Einstein who mused, “Everything seems obvious once understood”. Our goal is to work with smart passionate people, have fun and make a reasonable living in the process. We do not require or ask for any special terms that might be used to control my portfolio companies or teams.   Unless representing a group of investor as a board member I am usually a simple minority stockholder with no special voting rights. My only power is that of influence and recommendation.

Additional Information

If you’d like to know more about how I think and what advice I typically give then read my book.

The Startup Hats

The StartUp Hats


As stated previously, past performance is the single best indicator of future performance. There is a comprehensive list of my portfolio companies on my LinkedIn profile.   There you will also find an unedited document entitled, “What David’s Portfolio Company Founders Say About Him”.   These are unedited comments received from each of my founders.   There is also a document called, “What StartUp Leaders Say About David”.   Likewise, these are comments from well respected and well known leaders in the Triangle entrepreneurial community about my work and reputation. I am happy to provide contact information and introductions to any of my founders with whom you may want to speak.

…best of luck with your venture and let me know if I can help you in any way.