Investors: Whose Money to Take (and Whose to Turn Down)
One the first goals--not to say obsessions--of any entrepreneur who wants to build a lasting, valuable company is to get funded. I have one piece of advice to anyone on that quest: Don't follow the money. Follow the passion. Find investors who believe what you believe, who see the world the way you do, and who want you to succeed almost as much as you do.
Remember that taking investors into your business isn't just a one-time financial transaction. It's entering a long-term relationship. You're marrying these people. You’ll be connected to them for as long as your business exists, which will hopefully be a very long time! And just as in any marriage, you need to fully think things through.
Step 1: Check Your Potential Investors' History
What companies have your potential investors funded in the past? What boards have they sat on? You're looking for people with experience shepherding companies (successfully!) that were once similar to what you are now--a small scrappy disruptor in an established industry, maybe, or a start-up with a valuable technological breakthrough. Make sure to talk to the founders of those success stories, to learn how your potential investors operate. Most important, make sure you also talk to the founders of companies they funded that weren’t successful, to see how they were treated. While your company is no doubt destined for greatness, you can be sure there will be rough patches. You should be wary of investors with a record of abandoning companies when things get tough.
Step 2: Value Those With Experience
As an analogy, I always point out to fellow entrepreneurs that if you’re planning to climb Kilimanjaro, the easiest way to start is to find 10 people who have already done it and pick their brains. What did they pack? How did they train? Who did they take with them? What path did they take to the top? For example, one of our investors, Lee Barba, climbed his version of Kilimanjaro as the founder and CEO of thinkorswim Group, which created a suite of online tools for individual investors. We've been able to avoid a lot of painful mistakes thanks to Lee's experience.
Step 3: Align Your Visions
When looking for your own investors, you absolutely must align your agendas from the start. What will the company’s goals be? How will you define a successful year? Where is the company headed in the next few months and years? You’ll need people who are passionate about the product, but also people with realistic, agreed-upon, and clearly defined goals for your business.
Step 4: Consider Who Will Make Great Board Members
Many of your investors will retain an active day-to-day role at your company as board members. When you hear “board members,” you might think of people who check in for quarterly board meetings and vanish for the rest of the time. I recommend you aim way higher than that.
The LearnVest Board serves as mentors to me in the office as much as they’re mentors outside its walls. To cite one example: Our chair, Ann Kaplan, is a former managing director of Goldman Sachs, a teacher at Columbia Business School, and for years has been a leader in organizations that promote financial literacy for women. She was aligned with our vision before I even had a vision.
I’ve learned that a phenomenal board member…
- Stays up to speed on your progress (almost weekly)
- Has work to do for the company
- Cares and is passionate about your vision
- Challenges your thinking
- Has exceptionally high standards
In other words, the right investor is not only about your bottom line. Rather, she is also truly passionate about your mission, deeply familiar with your business model, and able to impart trusted guidance. You should realize that finding those perfect matches can't be done in a hurry. So don't jump at the first deep pocket that comes your way. Take your time. Your business will be better for it. I know mine is.