So you want to raise money – chose your investor carefully
At least once a week I take a call, or a coffee, with an entrepreneur who wants advice on how to raise money. We talk about her product and market, the stage of her business, how good is her story and what her vision is. And then we talk about the tactics of raising money. How to get a warm intro to reputable investors, how to think about angel vs. seed vs. venture, how much to raise, what a strong pitch looks like – the usual tactical coaching.
Yesterday I was delighted that the entrepreneur I was coaching also brought up how to assess the quality of the investors. The quality of the firm and the individual. She’d had a bad experience in the past and simply did not want to have a poor quality individual in her deal.
Many entrepreneurs never realize how important this question is: all money is green but it is not all equally valuable. Investors, like human beings, come in all styles and since building a company is a marathon not a sprint you want to be running with someone who is enjoyable to be with and who will help you win the race.
First, pick someone who has the same vision and values as you. You are (hopefully) in your venture because you believe you can change the world (if you are doing it to get rich stop now because you don’t get rich in the startup world by trying to get rich, you get rich by building something) and it’s very important that your investors want you to change the world too. There are many, many tough moments of truth when building a company, and none more so than when you get an offer for your company before you think you are ready – before you have built the strategy and value that you believe is possible. That moment is when you find out whether your investor truly shared your vision on how to change the world or was just telling you he did.
It’s also important to pick a partner who can do heavy lifting for you when you need it. Great venture firms have a rich, deep network to help you recruit, develop partnerships, manage sticky HR issues and even find office space.
Avoid the money based VC (often a former investment banker) who’s motivated by running a portfolio, who wants to tell you what to do but has never done it himself. Find someone who walks the talk and builds great companies. Find a former entrepreneur who has really done it him or herself. If you can, find a VC who has been doing it for more than 10 years and has a great track record – and talk to their CEOs – or find one who’s been a CEO, built a good company and taken it public. All this is visible on their web bios.
And pick someone you enjoy being with. Most companies take many years to mature and if you are going to meet with your board a couple of times a quarter for 5 years it certainly makes the journey more fun if you enjoy interacting with them.
Sadly there are many entitled, think-their-shit-doesn’t-stink VCs in Silicon Valley. I could fill a book of stories of men who think they are rich because they are smart and that they don’t have to be courteous or helpful. Who are openly rude, dismissive and condescending. For comic relief – one of my most bizarre meetings was with a young VC whose firm had been in early at Google and he spent the whole meeting behind his desk checking the Google stock price and telling me how much money he had made. He was not the partner in the deal, just in the partnership, and yet he still thought it was all about him and I should be impressed!
But at the same time there are plenty of men, and women, who truly love working with entrepreneurs and have a very healthy respect for how hard building a company is. The challenge is you may have to kiss a lot of frogs to find your investing prince or princess. So manage your time and do your research up front.
Of course, in the end, you do need to get funded and you may need to take what you can get, but if you have the chance to be selective, the right investor is more important than the highest valuation because you’ll build a better company, have a stronger chance to change the world and make more money in the long run with the right partner.