Creating a Win-Win Between Investors & Startups
There is nothing more exciting than being part of the next great disruption, and the good news is: there are limitless opportunities for both investors and startup founders to work together. How well you work together…that’s another story. With many options, styles, and stages of the startup lifecycle, comes complexity and confusion, too. It’s helpful to think through how the different roles need to function to create a win-win for everybody. Which is the goal – right? Not just for the investor, but the startup, and (in my opinion) the world. Here’s how to do it.
Why a Win-Win For Investors & Startups Matters (& How To Achieve It)
As someone who has proudly “Gone Galt,” I do believe that self-interest is in the best interest of the whole. But, that doesn’t mean being selfish or greedy, as I discussed here. By prioritizing and creating a positive relationship, both founders and investors benefit – and so do the consumers.
1. Get Aligned
As a founder, what are you looking for? Before you get in the room with any investor, but particularly angel investors because they’re typically more interested in early-stage, unproven startups, – know what you’re looking for. Are you giving up an equity stake? Or a convertible note? An investor will likely have a perspective on the right path for your startup and be looking for a sweet spot when it comes to equity – mostly that you have not given up too much at these early stages.
In a perfect world, I want my founders to keep a lot of equity. How much depends on which round of funding an organization is in, but, in a seed round I want don’t want to see a founder give up more than 40%. That doesn’t always work out, but at the very least, it pays to take a step back and figure out why you want to work together. And – if you don’t – save yourself a lot of time and money and don’t.
2. Get Clear On MVP And Scope
Being in it for the right reasons, and aligned reasons, is important, but you’ve also got to agree on some of the fundamentals. Ultimately, your goal is to hit the marketplace with a minimally viable product to learn, evolve, iterate, and succeed.
If you’re a startup in its infancy, that’s just simply not your goal right now – and it may be too soon for you to talk to investors because of that. At this stage, your goal is to define what the immediate needs are to develop an MVP, how much it will cost to create, and the controls you’ll rely on to track progress and deliver on the best value prop for your potential customers.
Got that figured out? Great. Now, do you know how big the potential audience is for your product? Are you clear on your market opportunity? Thinking big benefits your business, but it also benefits me as an investor. Have the numbers, do your homework, take advantage of the time you have with an investor and listen. They’ll appreciate and trust you more for it. Speak with precision and accuracy. At the end of the day, you and your investors have to agree on and believe in the product you’re taking to market.
3. Get Your Mindset Right
You’ve got to look at your relationship as a partnership. The exchange of money always creates a feeling of inequality, but the fact is, my capital needs your great idea to come back to me with a profit attached. We need each other. Not all investors, even angels, love to focus on the mentorship side, and that’s fine. What you do need to do is create the right relationship and communication touchpoints to ensure that the investor and founder/CEO are functioning as a team.
What does this look like? This may look like the investor attending a kickoff and being part of joint sessions, or it may look like the investor receives an executive summary with key learnings every month.
4. Be Patient & Willing To Change
The open and honest sharing of feedback and information is critical to your relationship and your success. As your startup grows and evolves, so will the dynamic between the investor and the startup. It’s a grand experiment, an adventure. Try to look at it that way. Yes, a win-win for me involves a return on my investment at the expectation outlined in the investment deal, but I have been around this space for a long time and I know that doesn’t happen overnight. When I invest in a startup, I am playing the long game, and I fully expect the organization to change, grow, evolve, and even fail along the way to success.
5. Stop Taking Everything So Seriously & Have Fun With It
Every day, I wake up jazzed about what I do. I am someone who thrives on adrenaline and has never shied away from risks, so I get the same buzz off searching for tech unicorns that I do from heliskiing. When I am excited about a startup, the partnership I create with the founder is part of the fun for me. I want to know smart, innovative people and be a part of their support network. I can get just as jazzed up at seeing incremental positive change demonstrating traction at a very early stage as I can hockey stick, unicorn traction after a little time in the market. I want us to be seen as contributors to the greater good. Your successes reflect on me, and I want you to succeed – because, at the end of the day, I believe in what we are doing together.
Be In It To Win It – Together.
Keeping the passion alive is more important to the success of your startup than living in a spreadsheet out of fear of letting your investor down. Take the long view and recognize that your deal is just the starting point – what you should (ideally) be agreeing to create a long-term relationship of shared goals that can evolve through transparency and trust.
Enjoy the ride.
