It’s easy for Founders to think that getting investment for their startup is just about the money, but it is so much more than that.
Founders learn and validate a lot about themselves, the product, the team, the problem, the market, the competition, and yes, the business, while raising capital. I know some repeat Founders who didn’t need outside investment in their company from a purely monetary perspective, who still actively raised money because of the other benefits that are a part of the process. It’s worth the enormous benefits founders derive from the conversations and fundraising process.
Founders who raise investment learn very quickly whether their narrative and ability to tell the company’s story is compelling or ineffective. A Founder’s story to investors will vary from that to potential customers, team members, and partners but the core and essence will stay consistent. If a Founder can’t effectively tell their story and the company’s story effectively to investors the chances of them doing it well with others is low. Founders might even want to have slightly different stories and pitches for different types of investors. The end goal of raising money for a startup is, of course, about securing the capital for the company to realize and fulfill its potential. But, more often than not, the process of raising money helps Founders to become better storytellers which is a critical skill for them to have. In fact, an argument can be made that storytelling is the most important skill for Founders as it helps them to raise money, sell customers, and recruit a team among other things. Much of the storytelling skill for Founders begins and evolves as part of the raising money for the company.
Raising money shines a bright light on how well a Founder understands the problem they intend to build a product and company to solve. Investors will drill into the problem and a Founder’s depth of understanding and knowledge of the problem as part of making an investment decision. Founders who can demonstrate deep problem understanding and expertise will gain credibility with investors. It becomes obvious quickly to investors when a Founder doesn’t have a very deep understanding of the problem. This should be a red flag to a Founder and Founders who are told by investors they don’t understand the problem well enough to attempt to solve it. Those founders should heed the advice and dig further into the problem. I believe, and write about in my book The Founders Manual, that Founders can’t expect to solve a problem they don’t understand at an expert level. Raising money and pitching investors will either confirm or deny the depth of a Founder’s problem understanding. Founders who walk away from investor meetings with the perspective that the investors don’t know what they are talking about because they challenged the Founder’s problem understanding depth are being defensive instead of taking the experience as cue to dig deeper into the problem. Investors who make Founders think more and to dig deeper into a problem are doing the Founders a service. Founders can’t let their egos stand in the way of hearing and acting upon sound advice from investors about the problem. Investors may not know much about the problem a Founder is trying to solve, but that doesn’t mean they can’t tell when a Founder themselves doesn’t know enough about it.
Investors care a lot about who the team is because ultimately the team is who they are really investing in. A strong team can overcome weaknesses in other areas of the company, but rarely can a weak team be overcome to secure investment. The best investors will tell Founders how and where they see weaknesses in the team. Investors have large networks and can sometimes help a team to fill a gap. Founders should use investor feedback about the team to reconfigure as needed, and founders should be comfortable asking investors for advice about the attributes of new team members because this will establish a sense of ownership in the team by an investor and gives Founders a proof point with investors. If an investor tells a Founder they need a new CTO and a Founder goes out and recruits someone that is a better fit, the Founder just gained some credibility in the eyes of the investor. These small pieces of credibility go a long way in gaining respect, interest, and future investment from investors.
Any significant investor in a company will end up having a board seat and vote which means the investor choice should be more than just about money. These investors will help govern the company and provide strategic direction advice and support. Founders need to be philosophically aligned with investors who will have a board seat before agreeing to take the investors’ money. Many company board room battles could have been avoided by better investor and Founder alignment before an investment deal is made. Even when we’re discussing financing a client’s digital product design and development at AWH, we work to make sure we have an understanding and alignment with the client on the product and company’s path forward.
Investors will challenge Founders in every aspect of the company knowing that most Founders don’t listen or if they do, won’t act. Investors know by experience that most Founders will walk away grumbling and reach out to another set of investors to try to pitch to. The Founders who take the criticism and/or advice in a positive manner and who improve themselves, their story, the team, and the company will increase their odds of getting investment from the investors they’ve met with and will meet with.
Raising money is a grind for most Founders. Making the most of the time and energy during the process of engaging with investors can help a Founder and a company to progress and evolve rather than be worn down and worn out. Founders should be mindful of other benefits to raising investment beyond the money. Most investors aren’t going to invest in their company, but they may come with a differing perspectives or advice that is beneficial to the company’s path forward. Go get the money, but don’t ignore the other things along the way.