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A value-add investor looks out for you and thinks 3-steps ahead.
Investor, Entrepreneur, Board Member
Entrepreneurs who bootstrap first are further along and personally vested.
Only raise capital from friends and family if they understand the risk and can afford it.
Avoid the “party round” of financing, if at all possible.
Lesson: Fundraising Series Seed with Jenny Lefcourt
Step #7 Investors: A value-add investor looks out for you and thinks 3-steps ahead
I do think it’s great when an entrepreneur has the option to bootstrap. I think it means a lot because one, they come in further along. And two, it sort of shows you the kind of person you’re working with. They believe in themselves. They put their money into their business and they invested in what they’re asking you to invest in. So if that is an option, I think that is a wonderful option to take.
Friends and family, I’m less excited about. I think that it depends on who your friends and who your family are. But it’s stressful enough to be an entrepreneur. It is a hard, hard job and if you feel that you’ve other people’s money, your friend’s and families’ money, and they’re asking you, “How’s it going, how’s it going?” And you know it’s going to break your heart to disappoint them. I would argue not to take it. I think that is a really hard place to be in.
I know a lot of people do it. As long as, I would say, the friends and family get how risky it is, that if they lose it, they won’t be upset with you. It won’t change their life in any way. I just think that, that’s too much stress for any individual to take on.
Then, I think angels are a very interesting role. If you need a small amount of money and you know, “Wow, if I could just raise $300,000. I could go into those seed angel or seed investors, Series A, whomever it may be, with such a different proposition.” I think that, that’s a fine approach to take and you know exactly how you’re going to do it and what you’re going to use those funds for.
When you’re in a position where you think it’s time, “I need to raise $2 million,” or “I need to raise a significant amount of money.” I far prefer finding a strong seed investor or two to come in the round versus 20 to 30 different angels. The reason is that, and I’ve lived this, some of my entrepreneurs have, because they didn’t have options, they did what I call the “party round.” Right?
They just keep on taking the 50K checks, 100K checks to fund their business. And it enabled them to stay alive and enabled them to build their company, but they were sort of alone in the world. They didn’t have someone, working for them, hustling with them, looking out for them, weaning out the road ahead and where the holes may be. So, it gets to be a little bit more exhausting. You have a long list of people you can call if you have a question. But a really value add investor isn’t the guy you just call with a question. It’s the person that is looking out for you and telling you what’s three steps ahead of you that you don’t even know is there.
I think that entrepreneurs have to not only make a good business case, but they have to kind of put themselves out there. They have to make it interesting and fun. I mean, these investors are saying, “Who do I want to work with?” “Was that meeting fun, was that interesting?” And I think when you’re an entrepreneur, you often think you just have to make your business case. Once they hear that you have a strong business case, they will want to invest and that’s just not enough. And it’s true; VC’s are hearing pitch after pitch after pitch.
Sometimes you’re entering a room saying, “I hope I don’t like this.” Which I know sounds crazy, but it can be, it’s tiring sometimes to be that interested in so many things. So, an entrepreneur really has to get in there and get the investor jazzed up. I don’t know that entrepreneurs get that.
But you also have to be authentic. So you can’t go in there and be all jazzy for jazz sake. You have to kind of have high energy. You have to have a lot of passion and you have to work with energy across the table. But don’t just think it’s the facts, because it’s way more. A lot is the personality, the connect.
What a lot of entrepreneurs don’t get, and I didn’t get until I was on the other side, is that a lot has to do with timing and how much of an impression you left. And a lot of it is fit. At seed stage, you have to be really excited about the business. So when I first started, I was thinking, “Well, there’s nothing wrong with the team. They’re strong. There’s nothing wrong with the business. I could believe in that.” But that didn’t necessarily mean that I was going to invest and I didn’t know that coming in. And now, a few months later, I get that a lot more. I sort of sometimes sit with the business and think, “If I can’t shake it three days later and I can’t get my head from thinking about it, it’s a really good sign.”
And so I would just say to entrepreneurs, you’ll probably know the difference when you’re meeting with an investor who sort of speaking to your next slide. Right? They’re three steps ahead of you and there’s excitement in the room. Versus when they’re like, “That makes sense, that makes sense." So I would just say, you have to gauge not only fit but sort of how much you got from them and how much excitement there is to work off of. I think at the end of the day, at least in the seed stage, that becomes a big driver.