Founders’ relationships with investors
The relationship between a founding team and seed investors is an important one. When done well, it is a dynamic relationship in which the business benefits tremendously. When done poorly, it can put stress on the business and even lead to diminished productivity. Founders carry full responsibility for the business, so they have full responsibility to put in the effort of forging and managing the investor relationships, as well as effort into the business’ operations.
Founders should not only work hard to successfully raise capital, but they should also work hard to find investors with compatible business philosophies. Often, companies need to take in money from anywhere they can get it – and this is okay as any money raised is an accomplishment – but if possible, founders should work with angels who are a good personal fit.
Three things founders should evaluate
It is always the responsibility of the company to make sure the investor relationship goes well, so the better the fit, the easier and more productive the relationship will be (and the less time the company will have to focus on satisfying investors verses operations). To this end, I believe that there are three areas where founders should evaluate how their relationship with angels will work:
1.) Investors should bring a strong network for introductions. These introductions should help with sales leads, which will lead directly to revenue. They should help facilitate strategic relationships that can lead to future revenue as well as lead to building out the long-term asset value of the company. They should also be able to provide access to additional capital if and when the need arises. These diverse networking needs are a great argument for bringing in a group of investors for the seed round, and not just one or two angels.
2.) Investors should make a genuine commitment to actively help the company leadership. Many investors start off very excited about an opportunity, and their engagement with the company reflects this. Unfortunately, many soon begin working on new projects and/or with their own company, and as their interest wanes, they no longer spend much time actively helping the business. A founding team should target angels who will actively AND consistently provide help with ideas, feedback and strategic direction. And provide tough love when it is needed.
3.) Investors should know when to keep a distance. When business is running on plan and well, and obligations to the investors are being met, you want investors who don’t unnecessarily take up time from founders, executives or employees. You want investors who know when to stay away. Company leadership should keep the angel team engaged on some level, though, so that when help is needed (on introductions and/or strategy), the investors will reengage in a productive way.
Founders should interview investors
When done well, investors operate like an extension of a company’s management team. Founders should therefore interview them not unlike they would an employee. There is no arguing that an angel doesn’t have a lot more leverage than an employee, but that doesn’t mean that some of the same evaluation shouldn’t take place to find a strong personality and philosophy fit. Add in the above three ideal investor traits, and a company doesn’t just bring in capital, it adds additional and proven leadership to help fulfill maximum potential.
I know they are out there – does anyone have a story about an investor who went above and beyond to help you get started?
