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Following my own recent Series C round, I’m struck by the similar roles that my family and investors have played in the success of my company. My investors have been my mentors, counselors and ardent supporters when I’ve needed them most.
For investors, the companies they support are like children. Those companies need to learn and grow on their own, but their best chance of success depends on the right amount of nurturing and guidance. Too much involvement and your investors become helicopter parents who eliminate room for failure as well as improvement. Too little involvement and your business is in danger of becoming a child unsure of how to fend for itself. I believe the end goal for any startup and investor relationship should be educated empowerment. The business should be its own entity that is equipped with the right resources and support to help it tackle any challenges standing in its way.
To achieve thoughtful growth for your startup, I’ve found that selecting the right investors means focusing on these three critical factors:
Determine who makes the most sense for your specific business.
Gathering research before you sign the term sheet is critical, and there are key questions you need to ask, such as who has this investor supported in the past? Were those companies successful, or did they fail?
In my experience, the answers to these types of questions go beyond whether they have experience helping past investments grow into industry giants. Their expertise in certain industries is also an important factor to consider because, with the right industry knowledge, they can provide your startup with tailored support. If an investor you’re considering has past portfolio companies in similar spaces (e.g., urban transportation or the gig economy), they can provide pointed advice based on their history working with companies in similar situations.
On the other hand, recognizing where your company is falling short can be another way to identify an investor. If you’d like to work on expanding to new markets or building relationships with large-scale enterprise companies, an investor who has strengths in that area can provide you with new information and relationships to get you there. Lastly, connecting with them personally can make a huge difference.
Focus on diversity.
The number of women-owned businesses in the United States has grown nearly 60% since 2007, according to the 2018 State of Women-Owned Businesses Report. Nearly $40 billion was invested in companies with female founders in 2018, but this number only represents 17% of venture dollars funded globally. If increasing that number is important to you as a founder (as it is to me), then I believe finding investors who not only share that goal but have also worked to achieve it is paramount. Investors are long-term partners. And in my opinion, a partnership that is grounded in a mutual understanding of the struggles facing minority founders and the desire to alleviate those struggles will set a strong foundation for success.
For example, I am a working mother and entrepreneur providing a service to parents and schools, so an investor who understands my point of view will be well-armed to handle the challenges that come with this demographic.
I’ve found it extremely helpful when investors resonate with the market the company is trying to serve. Do they help fund nonprofits within your industry? Is volunteerism a typical practice? Do they speak publicly about making a difference? I have seen that more consumers value an organization’s social impact, and emotional connection is an immensely powerful driving force. From my perspective, choosing an investor who embodies the same qualities and social responsibilities as those of your intended audience will only increase your chances of success because you’re working together toward the same goal.
Seek marketing and storytelling support.
Building a business is all about creating partnerships that continue to push you forward in achieving your ultimate goal. Funding gives you the monetary support needed to make your business run, but the best investors are those willing to also help tell your story by giving you more reach, connections and validation. Garnering that support is crucial, especially when your startup is in its very early stages and resources are strapped. Startup employees wear multiple hats (I have simultaneously been my company’s CEO, its first driver and a regular customer), so assistance from experienced professionals well-versed in telling startups’ stories, particularly stories that contain elements familiar to yours, can make a difference on your bottom line and potential customer base.
Investors will be interested in helping to tell your story for two reasons: The first is that they truly care about your well-being and that of your business, and the second is the understanding that if your story succeeds, so will theirs. The key then is to investigate the type of storytelling they’ve conducted on behalf of their other portfolio companies. Take a look at the news articles announcing some of these companies’ funding rounds. Did they paint a full picture of the company’s mission? Were the investors quoted in the articles or press releases? An investor’s marketing support is often behind the scenes as well, so don’t be afraid to ask what type of support they could provide you with. Come armed with marketing questions, and expect answers.
To own a business is to act as a hypothetical parent, and as all parents know, support is critical. Relatives, friends, mentors, nannies, schools, extracurricular organizations — these members play unique and important roles in a family’s success, and the formula for business success is no different.
April 29, 2019 at 08:08AM
Forbes – Entrepreneurs