For many startups, the main goal of early-stage funding is to infuse the company with much-needed cash to build out its product, build up its pipeline, or both.
Startups may overlook evaluating an investor on criteria beyond the investor's ability to provide funding. As a past founder who raised venture capital funding and is now working for a venture capital firm sourcing deals, I have come to understand both sides of the fundraising table and have seen that an investor's impact can go well beyond its capital outlay.
Funding aside, some investors will have no involvement with their startups after they have written their checks, and are therefore neutral investors. Others end up being net negative investors by detrimentally influencing the startup's direction, interfering with operations, or making burdensome requests and demands. On the other end of the spectrum, net positive investors can be a valuable asset to a startup as the company navigates the treacherous waters of its first few years.
Here are some of the key features to look for when seeking a net positive early-stage investor.
There is plenty that can go wrong with a startup in a short period of time. A net positive investor will schedule to meet with you, in person or via video conferencing, on a regular basis (at least once a month) to hear what your challenges are in real time. He/she will provide advice, best practices, and assistance, helping you to identify and address problems before you start going down a slippery slope. I remember one instance where a startup was planning to spend a significant sum of money on a marketing campaign with a tenuous return on investment and an investor was able to steer the startup towards a much more cost-effective alternative before the startup sank any money.
While the investor should be providing input, he/she should also being use discretion when involving himself/herself in major decisions and situations that will have a fundamental impact on your company. He or she will recognize when it is appropriate to take an action or voice an opinion and when it is better to stay on the sidelines.
Startups can always use more introductions, whether to potential customers, partners, employees or other investors, and a warm introduction from a trusted connection is usually much more effective than a cold call. If your investor has a well-established network and is willing to provide introductions, you can save time, energy and money by efficiently reaching the people you need to meet. Some investors with extensive networks will even make introductions for startups before providing funding to demonstrate their ability and willingness to be helpful in making connections.
An investor who understands your industry, either through operational experience or prior investment experience, will usually have a solid grasp of industry jargon, tricks of the trade, and market movement. This inside scoop can help you refine your messaging, find effective approaches to reaching your audience, and recognize opportunities that may not be readily apparent to an outsider. I recall one instance when an investor notified a startup founder about a call for speakers for a notable industry conference. The founder was selected to speak and secured several sales leads as a result of presenting at the event.
The support of a net positive investor will go beyond what he or she can provide alone. The investor will be attuned to the specific needs of early-stage startups and find ways to deliver solutions. One way this is done is by creating a network of the investor's portfolio companies which allows founders and team members to exchange information, ideas, recommendations and lessons learned. I know startups that have used such a knowledge repository to save countless hours of time that would have otherwise been spent researching ordinary topics - from insurance providers and recruiters, to sales techniques and marketing strategies.
While you may be laser-focused on the short-term goal of closing your round, taking the time to assess and seek out net positive investors can bring you closer to your long-term goal of business success.
About the Author
Roselle Safran, the Entrepreneur in Residence at Antecedent Ventures, previously co-founded and was CEO of Uplevel Security, a cybersecurity technology company with Fortune 1000 customers and numerous prestigious industry accolades. Before founding Uplevel, Roselle was the Cybersecurity Operations Branch Chief at the Executive Office of the President and managed the 24x7 Security Operations Center that protected and defended the White House's network during the Obama Administration.