There’s a point in every startup company where the founders get out of their depth. First-time founders might need help earlier than someone who’s been through a couple of rounds of funding, but when you get past the seed round and start looking at capitalizing on Series A and Series B rounds, there’s not really a playbook on how you’re supposed to approach it. In this article, I’d like to recommend that you find investors early who can add real, tangible value to your company and give you a few reasons why that’s important in later rounds.
Using Early Investors to Flesh Out a Team
By the time a startup company is hitting their stride with a post-seed round, you hope that their team is generally complete: all the key players from the pitch are represented, somebody’s fallen into the role of operations, your Chief Technologist has made real progress to implementing a solution, and your pitch is polished from dozens of meet-and-greets. If that doesn’t sound like where you are yet, it might be better to find an angel investor who wants to take a founding share in the company. These angels typically take a role slightly less involved than a founder but equally as crucial: distribution (channels into retail) is a popular role to fill here, or manufacturing and sourcing, or legal/professional services.
This type of investor is markedly different from the next type of smart money investor.
Getting a Been-There-Done-That Advisor
Like everything in life, there’s not just “one right way” to build a successful startup, and a former startup founder knows this better than anyone. Most founders are learning by trial and error as they make decisions about the direction to take their company. There are a bunch of “serial entrepreneurs” out there working as angel investors, so if your founder game is pretty locked down and you’re confident that you can put together the company top to bottom with your current founders, bringing on an investor that will serve primarily to help you make high level decisions.
It’s important to separate here the two types of advice this type of investor can give: business advice and ‘startup advice.’ Let me explain what I mean by that. Business advice is about the day-to-day running of your business: how to price products, whether to launch an alpha, how much to spend on development. ‘Startup advice’ is about the notably insular bubble of Silicon Valley-esque startup mentality. This kind of advisor can help you make decisions like ‘will we get a higher valuation if we X or Y?’ or ‘is this deck good?’
Both types of advice can be useful, and you would hope to listen to people who complement your own skills and experiences.
How Long Should You Wait For The Perfect Match?
A lot of startup founders will take the cash from the first person to write them a check, and it’s hard to blame them for that, but it’s crucial to remember that if one person believes in you in a world with 7-plus billion people, there are other investors in the sea.
Judging whether or not you should turn down money from someone who just promises a check for a cut of equity is a decision that ultimately falls to the founding team. Later-stage startups, like many of our readers who have already completed a Series A and are looking at higher funding opportunities, can wait much longer than someone running off borrowed money from friends and family.
It also depends on how many meet-and-greets, pitches, and other opportunities to win money you have in front of you. If you’re pitching every month, you’ll get a bite sooner or later. Your willingness to turn down money should also be based on how much interest you’re seeing from potential founders and even how esoteric the problem you’re hoping to solve may be. High-interest startups in popular categories have their pick of the litter when it comes to investors.