Mark my words. Choose. Your. Investors.
Early stage fund raising is less about money and more about value your investors can bring.
I have drawn a parallel between founders and investors, founders and early team members — basically any entry level association and a founder — a number of times. And there is a good reason for that. In your early days, you would be having your hands full — pretty much all the time. There will be countless things that you would need to do, and you would be missing out on a lot of things that could have helped you cross those items from your to-do list:
- not enough bandwidth
- don’t have the right connections
- don’t have the right skills
- have a blind spot (or a few)
- don’t have the cash
Yes. Cash is important, but so is everything else. You bring onboard co-founders and early employees who can help you take care of the bandwidth and possess the missing skill sets. And that is the same mantra you should be following when it comes to ‘choosing’ your investor.
That’s right. I want you to choose your investors based on the need of the business at the time (or in the coming days based on the business roadmap).
Starting up is hard. You are struggling all the time. You feel like you are playing a game of twister 24x7 when you need to be in one place at one time, and in an altogether different one the very next moment. And every day, you would come across scenarios where you would feel that a lot of your problems would go away if you had more cash.
You would not be the first one to feel that way. And you would not be the first one to be wrong in feeling that way.
WHAT IS YOUR BIGGEST CHALLENGE?
I have come across several entrepreneurs who would answer this question in one word — “Funding”.
Money (or the lack thereof) isn’t your biggest challenge. It isn’t even a prime challenge. It is just an excuse. Money is what you feel would solve your problems because you see a lot of businesses around you that are apparently flourishing and the only thing they have in common is hundreds of millions of dollars in funding. That somehow gives you the illusion that having access to that kind of cash gives you invulnerability and solves all your problems.
Funding is never the challenge. It is A challenge, sure, but never THE challenge.
If you are a business that is just starting up, your biggest challenge would be making the first sale. If you’re a startup that has been business for a few weeks/months now, your biggest challenge could be one of countless contenders, depending on your business as well as the space you’re operating in —
- why are you seeing traffic, but no conversions?
- why is the cart abandonment rate so high?
- why are your marketing campaigns not working?
- why do you have good app install numbers, but such a disastrously high churn?
- why are the return/refund rates so high?
- how do you procure the products/services for a cheaper rate?
- how do you improve operational efficiency?
- how do you get more partners/form more strategic alliances/have better (or more) vendors?
- how do you turn customers into your marketing champions?
The list is endless. But you would notice something interesting here. All these — they are all actual business challenges. You can relate to these questions. You can see some of them that have kept you up at night. And if $funding$ is something that’s keeping you up at nights, then you have already fallen into the trap of wrongly assuming that money will magically solve your problems. You have got your priorities wrong.
From the list above, pick the challenges that are currently plaguing your business. Now tell me something. If you’re given $100,000, does that solve your problem? Chances are, you would say — Yes it does. Because you have thought of some ways in which you would be able to solve these problems, but in every single one of them, you have hit a dead-end because you figured you would need money to implement those solutions.
There is a catch here! You don’t know for sure if what you have thought of as the solution actually solves your problem or not. Forget about whether that is the best way to solve your problem or not, you don’t even know if it works. So how can money magically solve that?
IN COMES THE VC. TO HELP
These problems are what should be guiding you in choosing your potential investors. People who can actually help you solve your challenges.
Have operational inefficiencies? VC 1 has few e-commerce and logistics companies on their portfolio list. Chances are, they would either know a bit about the nuances of operations. If not, they can certainly put you in a room with these companies they have invested in, and these guys can surely help you understand your problem better; maybe even come up with a better workable solution.
Suffering from bad conversion numbers on your marketing campaigns? Jack used to head marketing for Company X and now he is an angel investor. He can help you understand what are the various mistakes you are making in your marketing campaign/strategies.
Need better/more alliances? Hey. VCs. People who have been working in the same industry. They can help open more doors for you.
The money? That’s just a bonus.
Choose your investors. Have the same yardstick that you use when it comes to making a new hire. If the investor doesn’t feel right for the business, don’t take him onboard — irrespective of how big his wallet is.
(Easier said than done, I know. But if you can stay true to the course, your business would thank you later.)