Investors, Do You Want Them to Give You Money or Advice?
Ryan Frederick | September 9th, 2020
I run into Founders who believe investors will be of significant help to them and their company beyond the money. This might be true in some cases, but Founders should not expect an investor to contribute much more than funds in most cases.
It’s easy to say that Founders should just pick the best and the right investors for themselves and their company. Investors who can mentor and guide them through the mercurial nature of starting and building a company. After all, if the investors have invested in other startups and some that presumably have had some level of success then the investors are least one step ahead of the new Founders who haven’t experienced it working. In reality, this narrative is naive and oversimplifies the trials and tribulations most Founders go through raising investment. Most Founders don’t get to pick who invests. Actually, they can just say no to a potential investor, but if a Founder is scratching and clawing to find investment to keep the company afloat, let alone progressing, then they are not in a position to wait for the ideal investor.
An ideal investor is sort of the same as an investor looking for their unicorn company to invest in. Most investors have heard of the mythical unicorn (a startup that evolves to get valued at over $1 billion), but have never actually seen or experienced one themselves. Founders and investors often find each other and come together under the terms and a status of good enough for each. The investor feels as though they are making a reasonable, informed bet on the Founders and company, while the Founders don’t think they will find other investment at any better terms with anyone they believe they can reasonably get along with. The startup investment game is made up of more singles and doubles than home runs.
Looking at an investor as a single rather than a home run means Founders should not expect to get any direct operational guidance from an investor. Founders who think an investor is going to help them with the product, to acquire customers, product distribution, or any other number of startup challenges are going to be sorely disappointed. First, investors don’t want a job. They want to invest in you and have you figure it out and provide a return on their money. Second, most investors are not experts in 95% of the challenges a startup needs to overcome to be successful. Investors have their sweet spot of expertise based on their experience such as legal, accounting, sales, marketing, operations, etc., but it is a rare find to come across an investor that has a wide ranging spectrum of expertise.
Investors expect that the Founders and their startup team can figure out the challenges of building the company. Investors can, and are usually happy to, provide strategic guidance and support on very high-level company direction and plans, but Founders who expect investors to do more than that either won’t raise investment because of it or will be sorely disappointed when they do.
Some Venture Capital (VC) firms have Partners with titles like Customer Partner, Talent Partner, and Product Partner that leads Founders to believe the firm is going to dig into these areas with them in a meaningful way. In most cases these Partners are responsible to assist the firm’s entire portfolio of companies in their specific area of focus. This means that they have a limited amount of time they can spend with any individual company. Can they help in a very cursory way? Sure. Can they help in a major way? No.
Founders should be rooted in the understanding and belief that they will not get substantial operational help from an investor. If it ends up happening and a startup is able to match with an investor that has the time, capability, and willingness to provide operational help then they should leverage it, but Founders cannot rely on operational help from investors. Investors expect Founders to be good operators and Founders should expect investors to be good investors. Nothing more and nothing less should be expected from either side.