Key to Fundraising Success: Alignment

Brian Zimbelman
Sep 7, 2018 · 2 min read

Within a few minutes of meeting a new startup founder, I can tell what their ambition and risk tolerance is for their business. Their risk/reward ratio, so to speak. The challenge is, it usually isn’t what they’ve said. Almost every founder I meet with conveys a ‘go-for-broke’ narrative even if it doesn’t reflect the founder’s core beliefs about the business. If a founder can’t be honest about their risk tolerance, how can they attract investors with a similar perspective?

It is incredibly refreshing when a founder can be honest with me (and hopefully themselves) about where they see their business going, what they’ll need to get there, and the risks associated with the journey. It is also fairly rare. Many founders confide in me, usually after we’ve passed on a deal, that their projections are what they think they need to show to an investor in order to be attractive. The problem is that this creates an unintended consequence for the founder post-investment: misalignment. Not having aligned interests and risk tolerances between investors, founders, management teams, staff, and even customers is an enormous danger for any business.

I’m not saying that a startup founder shouldn’t be aggressive. What I am saying is that the founder should actually believe in the projections and have a realistic understanding of what it will take to achieve the projections. If the founder has attracted investors, a management team, and employees on a narrative of aggressive growth and everybody understands the risks and perils of the strategy, then the founder has alignment. But, if the founder attracts all those types of people and doesn’t actually believe they can make the numbers or worse, he isn’t able to make the hard decisions to achieve the aggressive targets, the team is now misaligned.

I think founders sometimes think that every venture investor wants to see the ‘hockey stick’ on the revenue projection chart. We do BUT we also want to be able to have some confidence in the numbers. It is our job as investors to figure out if there is any substance to the projections, to see if the founder and the business has what it takes to achieve those numbers. Behind the numbers is the risk/reward ratio. That risk/reward ratio needs to be the same for the founder, the management team, and the investors.

There are many different types of investors. Each one has their own individual biases, areas of competencies, portfolio strategies, timing sensitivities, and blind spots. If a founder has a great business, they will find the right investor for the business. If the founder and investor can start with aligned interests and similar risk tolerances from the beginning of the journey, the chances of success will go up significantly.

Brian Zimbelman

Written by

I work in the intersection of finance, technology, creativity, and curiosity. Investor at Crawley Ventures.