Money – most startup founders need it at some point. But when you’re raising outside capital, cash can come at a very high price if you’re not on the same page as your investors.
Where many startup founders go wrong in the fundraising process is focusing more on the offer than on who’s making it. Thinking about the cash instead of who’s investing it. So We asked 10 entrepreneurs from the Young Entrepreneur Council (YEC) to weigh in on what exactly they expect from their investors, and why.
1. Domain, Demand And Delivery
While closing a VC-led investment this month, I learned to focus on three key factors when searching for investors: domain, demand and delivery. First, make sure you add domain experts to your team early. At LabDoor, we compete in the complex digital health field, so adding a strategic partner like Rock Health was very valuable for us. Thousands of investors have the money you need, but only one to five will be lucky enough to be a part of your next funding round. Get investors to fight over you, and find the investors that demand to be a part of your team. Finally, think of your investors like UPS: what can they deliver for you? Whether you need connections to an important business partner or access to a big institutional customer, find the investors that provide the highest value. – Neil Thanedar, LabDoor
2. The Network
It’s relatively easy to get your hands on money: If you’ve got an appealing investment, you’ll have to beat them off with a stick. But it’s almost impossible to meet the right people to move your business forward without personal introductions. I’ll always consider the connections that an investor (or anyone else) can bring to the table over anything else. It works the other way around, as well – I’ve gotten the most interest from investors who I’ve been personally introduced to by someone I know. – Thursday Bram, Hyper Modern Consulting
I want to know that the investors I work with do what they say they are going to do. Those types of people are hard to find. It’s exciting when you’re offered a great deal, but it’s important to look at the big picture and examine who you’re going to be working with, what others say about them, and what your gut is telling you. Investors do a lot of due diligence on the entrepreneurs they are working with but I don’t see enough entrepreneurs doing the same intense due diligence on their potential investors. Admittedly, I’ve made this mistake too. What I want to know without a doubt is that the investor I’m working with has a lot of integrity and their investees and peers sing their praises. Rave reviews from others is very important to me. – Natalie MacNeil, She Takes on the World
4. A Silent Angel
I no longer seek the multimillion-dollar Series A round that will lead to a Series B and C. Our startup was built with a user-acquisition model vs. an actual “generates-profits model.” The larger the investment, the more control you’re going to give up, and the larger the exit needs to be. Instead, I look for opportunities with a clear profit model from the beginning that leverage a skill set or network that I currently have. And I don’t take funding for them until I’m ready to scale the company, which means that I’ve built the product and proven that it makes money. I therefore look for an angel investor that is looking to invest $50,000 – $100,0000 and will leave my team and I alone. We know what to do; the added funding is there to help accelerate the process. – Jun Loayza, Passport Peru
5. A Smaller Portfolio
If you’re looking to earn startup capital, you should always scrutinize investors. An investor should be as energetic about, and invested in, your organization as anyone. I recommend someone who has a smaller portfolio, filled with businesses similar to your own. When I started, I looked for outside investment. My search took me to an investment bank I’d interned with in college. The owner’s portfolio was huge and successful, and I thought that’s what I wanted. I realized, because of his portfolio, that he didn’t care at all about my business. I decided to retain full ownership. Don’t be too quick to jump on startup money. Find the right fit. – Brian Moran, Get 10,000 Fans
6. Experience – And the Wisdom Not to Rely On It
It’s a cliche to say you are looking for an investor to bring experience into the board room. But the reality is that investors are a great voice to have around if they can offer their experience and pattern recognition to help you avoid missteps. Our company was fortunate to have Meg Whitman, former eBay CEO and current HP CEO, as an investor and board member. What is most impressive about Meg is that she brings incredible and relevant experience in building a marketplace – really the most powerful peer online marketplace in the world. But she’s also wise enough to temper her advice with the knowledge that things have changed. And that’s the standard I look for – experience that is telling and useful, but the wisdom to color that experience with new realities. – Eric Koester, Zaarly
7. Deep Experience in Your Industry
As a former management consultant, I learned that the number-one benefit that major companies found was that their consultants had worked with competitors. This is not about taking proprietary information, but rather about knowing industry best practices, how to apply them, and what non-obvious questions to ask. Unless you are an incredibly seasoned entrepreneur or someone with deep industry expertise (i.e. a PhD or 20 years of experience), you don’t know what you don’t know. Having investors who can teach you and ask you tough questions is incredibly valuable. – Aaron Schwartz, Modify Watches
8. Would You Have A Beer With Them After Work?
Investors should be experts in their focus industries, but should also be capable of admitting when they don’t know something. I place extra value on humility and candor, which can sometimes be hard to come by in the investment community. When we were raising money for RJMetrics, we focused on investors who could step up when they were subject matter experts and yield to others when they weren’t. For me, these are also the same kind of people that I enjoy having a beer with after work. This is critical to building a healthy, honest relationship with your investors. – Robert J. Moore, RJMetrics
9. Everything But The Money
Find someone you can trust. Picking an investor is like picking your spouse. Sometimes it’s even harder to get out of a bad investor relationship than a bad marriage – make sure it is the right choice. When AdVentures made an investment in my company I looked at everything but the money. Did the investor have knowledge, connections, and experience to help take my company to a new level? All of the answers were yes, so it was a no brainer for me. – John Hall, Digital Talent Agents
10. Do They Walk The Talk?
In our most recent funding round, our new investors came to us because they saw the enormous growth potential for smart parking. They are an LA-based fund that specializes in intelligent transportation investment. After taking a few meetings with them, we quickly realized how excited they were to potentially join our business. Engagement is of the utmost importance. Investors should do more than talk the talk; it’s crucial that they demonstrate knowledge of the industry and show why they believe the product will succeed. – Sam Friedman, ParkMe