Mitigating Partnership Risk: Hearing It From The Horse’s Mouth

Some businesses rely heavily on securing key partnerships. While entrepreneurs will often make compelling cases for why the prospective partner will want to get involved, there are often unforeseen reasons why the partner never inks the deal. Key decision makers may be in a political struggle, they could be considering doing the same thing internally, the fight for budget allocations may not have gone in favor of the partnering department and the list goes on.

As a result, a VC will typically try to mitigate its exposure to the risk that the partnership will not be secured by having direct conversations with the potential partner. If they hear the partner say that the deal is going to get done, it is much easier to believe in the prospects of the startup.

If your company is currently in negotiations with the partner you will have to weigh the pros and cons of having the VC speak with them. While the VC call may add a new dynamic to your relationship with the partner, it may also signal to the partner that your startup is close to having deep pockets supporting it, mitigating financial risks. In this case, you have to make a judgment call, which typically boils down to letting the VC speak with your potential partner or waiting to get funding after the partnership deal gets done.

If you have not yet initiated conversations with your potential partner, you can leverage the VC due diligence process to initiate those relationships. Most good VCs have a deep rolodex and can usually find a way to get in touch with the person who would consider doing that deal with you. Not only can they make the introduction, but also they can give your company significant credibility when they are first introduced to the potential partner. When the potential partner receives a call from a respected VC who says, “We are looking at an interesting startup right now that could present a partnership opportunity for you. Would you mind having a conversation with them? We would love to hear your perspective on what they are doing.” If a serious investor is interested in your company the potential partner will likely give conversations with your firm more weight.

As a result, if your strategy depends on securing one or more key partnerships be prepared to facilitate the conversations that are required to give the investor comfort. And, if you have yet to connect with the partner you may want to leverage the due diligence process to help get the deal done.