Editors Note: The following guest post was contributed by Genesis Partners partner Eden Shochat. It originally appeared on The Junction blog. Reach out at @eden.

Taking an investment is getting into a long-term committed relationship, which like any other relationship needs to be cultivated, nurtured and managed. Funny enough, many of the entrepreneurs I meet have this perception of investors coming in and taking over their companies, with the founders losing control through the investors getting veto rights. The reality of it is that the company founders and management are much more informed about the day-to-day and are so much in control, that there is a whole area of studies around the “Principle-Agent Problem”.

One key point even before managing your investors is selecting them. I particularly like this list as a sanity check for an entrepreneur talking to a VC. Much like any relationship, you need two to tango, and startup life is hard enough without being stuck with, well, an asshole investor.

I am writing this more of a sanity check for me and as a note to companies that I work with. Hope someone else finds it useful, but YMMV.

Many of the following “how not to” indicators should be warning signs for early stage startups. Not “run to the hills” signs, but definitely pointers that something is wrong with the relationship:

• Demand for constant updates: A typical scenario is getting a call from your investor complaining that they are out of the loop and feel that once you got their money, you don’t call or write. Generally, this is exactly the investor that doesn’t provide you with enough value that you feel you should keep him up to date.
• Waiting for board meetings to “discuss” status: This is the other extreme, where either because of lack of capacity or desire, they don’t keep an on-going communication channel with you. The risk here is twofold: they are likely to be surprised with the board presentation, or worse off, will be less dependable to help the company when things go out of whack. And they will, they always do.
• Too active of an investor: You know how is it like. Your investor made an introduction for some reason, and now the overhead is on you. Or, crisis mode introduction to a VP of Marketing of whateveryoucallit.com because there was a slide about viral distribution in the last board slide deck. In hebrew we call it “full gas in neutral”, I wonder what’s the english comparable.
• Raising hell the first time you don’t meet predictions: Shit will hit the fan, be at at the first board meeting when the investor becomes an insider and starts grasping the nitty gritty of the business, the second board where it became apparent that shorting on your Q results predictions would be a sound investment strategy or if you just don’t get along well.

The reality is that an investor has one primary “stick”, which is replacing the CEO. When the CEO is the founder, who is (at least in my mind) the heart and soul of the company, this can be disastrous.

You need to realize the basic issue is information asymmetry. It’s not (I hope) that your investor is looking to nag, be shallow, take over your precious time or harm the company, many times it’s them feeling out of control and not having access all the information. The easiest way out of this is keeping a proactive communication channel with them, and defining very clearly what is expected of you and them. Notice yet another similarity to marriage?

So, how could you empower your investor to be more helpful, or in other words, how I would like to be managed by you:

• Expose KPIs (all the time!): The hardest part about exposing KPIs is defining them. What are the key performance indicators you’d like to judge where you company is at? An example for a consumer product could be: # of users that joined last week, % retention, average acquisition costs and average life-time value per user. For an enterprise sales company it would be average deal value, duration of POC, % of close. Email these in a tabular format that includes past weeks results, say what are your thoughts about the change and whether you are changing anything as a result. Be transparent.
• Tell them what you need (and what you don’t): I ask companies for my top-3 goals for that company every month. What should I be working on? Hiring, Intellectual Property, Monetization? This way I know what’s expected of me and you know that I won’t bombard you with things you don’t need. Understand your investors deeply. Do your homework so when you need something you know which ones to go to when you need something done for you. Don’t blast out emails to everyone you’ll end up the spammy entrepreneur and people will start to ignore you.
• Don’t wait for board meetings to meet and consult: Doing the day-to-day execution is demanding, but find the 10-15 minutes to call, ask what’s up, tell them the latest good & bad. You’d be surprised, sometimes just a good sounding board can make all the difference in that lonely life called being a CEO.
• Forward focus: When in board meetings, don’t spend more than 20% of the time reviewing the past. The rest should be devoted to how (if required) you are going to change what needs to be changed and what goals do you want to achieve moving forward. Plan your execution and execute your plan. Many founders do the opposite split in feeling they need to “present” to their board.
• Be direct, don’t be optimistic, or “manage expectations”. Tell it like it is. Treat it as a partnership, exposing good & bad so you can both put your thinking cap on and work through issues. The worst thing that can happen is having a positive outlook (remember, this is what they updated their partners with!) while issues start cropping, only to realize you are running out of cash in a couple of weeks (true story).  Ben Horowitz had a great post about this: CEOs Should Tell It Like It Is

Taking an investment is getting into a long-term committed relationship. Most important point is that it’s ok to ask for help – no one does it alone. Always make sure one of your investors is a person who you can call at 3am if you just need someone to chat when you’re at your lowest. startups are hard! You can’t always be friends with them, but it’s a long ride, might as well do it with someone you like.

UPDATE: Panel video above, photos here.

This Feb 16th two organizations privileged to support founders and their audacity to create the future, are partnering up to talk shop with over 200 Israeli founders and investors. Seedcamp, the popular European startup boot camp, is coming back to Tel Aviv to school and fund our best and brightest. Founders: There’s still time to apply until Feb 3rd. It’s going to be an intense day of mentoring and competition at Afeka College of Engineering with a chance to be seen by some of the world’s top early stage investors.

The IL branch of the TechAviv Founders Club, following up a riveting discussion with our top VCs last month, will convene at 6:30PM in the main auditorium right after Seedcamp’s last session to explore the new generation of seed-stage investment sources available to Israeli Internet and Mobile startups. What better theme to bring us together.

Panelists:
1. Jeremie Berrebi, Kima Ventures. One of the most prolific microfunds, making 2 investments a week!
2. Saul Klein, Seedcamp. Israel’s new $315M man, founder of Seedcamp, the European microfund now focused on Israel.
3. Eden Shochat, Entrepreneur-Angel-VC. Devoting every waking hour to Israeli Internet founders. Spearheads The Junction
4. Yair Goldfinger, Angel. Co-founder of ICQ and Dotomi now funds Israel’s next generation of winners.
5. Yaniv Golan, Angel. Sold Yedda to AOL, now backing young founders with partner Avichay Nissenbaum
6. Guy Gamzu, Angel. Diamond magnet turned Internet angel is backing some of the hottest new Israeli startups.

Many more early-stage investors will participate in the discussion from the audience. This is a closed event and already way over capacity, but every is welcome to watch and chat live Feb 16th @7PM IL time.

It’s been a year since we kicked-off the TechAviv Angels, an informal gathering of successful Israeli startup founders and investors that are privately angel-investing in Israeli Web and Mobile startups. Our format was simple – get together every 2 months to see pitches by the most promising TechAviv startups. I’m thrilled to say that the format led to the financing of several awesome startups but as many founders pointed out, one key element was not optimal – it didn’t scale.

Here’s what we learned:

1. It’s hard to coordinate the schedules of 50 angels for a bi-monthly pitch night.
2. The hottest deals don’t wait for a bi-monthly pitch night
3. There are too many qualified startup applicants for a bi-monthly pitch night.

Here’s what we’re doing:

Since our mission is to get as many brilliant Israeli founders funded as possible we’ve decided to change up our format to be more of an Angel List. Startups should still apply here, but instead of pitching in front of the whole group, we’re going to be sending a regular “Hot Deals” email to the Angels highlighting the most promising applicants. Interested Angels follow-up with the founders directly via email. We will not hold pitch nights, but Angels always have access to our applicant database for direct contact with the founders at any time.

Please note that the TechAviv Angels are a separate group from the TechAviv Founders Club, which is open to all founders of active Israeli hi-tech startups.

Lot’s of Israeli VCs talk up the importance of early stage investing but how many first investments do they actually make in seed stage startups and which VCs lead the walk rather than the talk? The IVC Research Center has released the results (membership required) of their 2009 VC survey and we’ve got some good and bad news to share. What do you want to hear first?

Ok, the bad; 2009 saw an overall 50% drop in dollars raised by Israeli hi-tech companies and a 35% drop in the number first investments by Israeli VCs. Israeli VCs made 77 first investments in 2009 compared to 119 in 2008.

Now the good; 38% (the majority) of those 77 first investments where made in seed stage startups compared to 28% in 2008. Internet, Software and Life Sciences sectors took in the most checks. Each took 22% of the overall annual first investment pie. Internet? Nice.

Most Active Israeli VC Funds in 2009
So which VCs made the most new investments? Surprisingly Terra Venture Partners, a tiny $25M cleantech fund, leads the pack with 6 first investments. Tied for 2nd with 5 first time investments are Carmel, Giza, JVP, Magma, Pitango, Sequoia and TriVentures. Gemini and Genesis made 4 first investments. Check out who they invested in and the stage and sector breakdown below.

Early-stage startups should keep these numbers in mind when pitching Israeli VCs. The most active of the bunch make 2 to 3 early-stage investments per year after seeing hundreds pitch. We hope to see these numbers increase in 2010 and that more Israeli Angels and micro-funds will step up to fill the seed gap but rather than just hoping investors take more risk, let’s get out there and build more sustainable Israeli businesses that merit the early financial support.

Two years ago we set out to bring Israeli hi-tech startup founders and investors closer together and to harness our collective experience and contacts to help fellow Israeli hi-tech startups succeed worldwide. Today we’re over 1,600 members meeting monthly in Israel, Silicon Valley, New York and Boston. I have the privilege to meet and befriend some of our industry’s sharpest and most creative minds on both sides of the table. It’s truly an honor.

Facilitating TechAviv has also exposed me to many of the inherent flaws in the relationship between founders and venture capitalists. I’ve also experienced them first hand as a VC-backed entrepreneur, a board member and as an advisor to investors, but not on this scale. Here’s the bottom line; while we ideally need to be as tight as co-founders, our jobs and who we are as people are often radically different:

• Entrepreneurs, at least the successful ones I know, are driven by ideas and passion, have super-human stamina (never accepting “no”) and a love for problem solving. Their job is to create new value for customers. They’d like to be rich so that they can do whatever they’d like in life, but they’re already doing that now.
• Venture capitalists, at least the successful ones I know, are driven by money and discipline, have uniquely accurate insight (knowing when its not the usual “no”) and a love for deal making. Their job is to create great returns for their limited partners. They need to be rich because most of their friends are, and well, its good to be rich.

At different stages of a startup these differences, ideally meant to compliment each other, often cause great friction, fundamental misunderstandings and even total meltdown. Throw in a global recession and the new economics of starting-up web businesses and you’ve got yourself the makings of one fascinating and desperately-needed group therapy session.

It’s time to “invest” in our relationship. First step is communication. We need to get some things out on the table. Those taboo subjects between founders and VCs that we talk about behind the other’s back. Those questions we’ve always wanted to ask. What’s working, what’s broken and how can we make things better moving forward so that the Israeli hi-tech ecosystem as a whole succeeds. In a time when the business and economics of building and investing in hi-tech startups is changing so dramatically, its more important than ever that we get on the same page.

UPDATE: Results of the pre-meeting questionnaire appear below:

On September 2, 2009 from 3:00-6:00pm at the IDC Herzliya the TechAviv Founders Club will convene the first in a special series of smaller town hall style meetings between founders and investors to candidly discuss our working relationship and practical ways to optimize it. We’re now over 400 strong in Israel but will limit attendance to keep the conversation as intimate and candid as possible. Priority will be given to VC-backed startup founders that can speak from experience. 20 of Israel’s top VC have also been invited. TechAviv Israel members can RSVP here. If you’re a founder of or investor in Israeli hi-tech startups and based in Israel, you can apply for membership here (free).

Thanks Danny and Adi. The idea for this meeting was inspired by conversations I had recently with Danny Cohen and Adi Pundak-Mintz of Gemini Israel Funds. They’ve been think about ways to bring investors and entrepreneurs closer together and have been doing so regularly with their excellent round-table events at Gemini. I’m proud to have them as sponsors of TechAviv. These guys embody our spirit of paying things forward. I’ve known Danny for a while. He’s one of those rare VCs that tells it like it is and sincerely cares about entrepreneurs and Israel. He’s doing something right but will be the first to admit he’s gotten lots of stuff wrong dealing with entrepreneurs. Danny recently returned from a 3 year stint at Gemini’s Silicon Valley office and gave a talk on Israeli venture capital at TechAviv CA on March 30th, the day before his last in CA. Here’s the talk with some good data and topics for the meeting on Sept 2nd. Enjoy.

UPDATE: Pic from the event: (Thanks @OurielOhayon)

Calling all TechAviv startups looking to raise up to $1.5M. Tevel.org, an NYC-based group of zionist angel investors, is looking to fund the next great early stage Israeli web & mobile startups. Our members are invited to submit an application to present at the upcoming  Tevel Angel Club event on July 28th in NYC. Only two web/mobile startups will be selected to present in front of over 60 power Angels.

As part of our affiliation, the application and presentation fees, normally $350, have been waived exclusively for TechAviv startups. Your only expense will be travel and accomodations. If you’re interested in presenting, email yael@tevel.org and let her know you’re a TechAviv member.

Disclosure: I’m an executive committee member of the Tevel.org Angel Group and along with fellow comittee member and TechAviv NY member Yaron Galai, will screen your application.