Hey you — raising that seed round. I’m talking to you. And you! Raising your Series A. All y’all raising money. You listening? I get that you want to minimize dilution. And I get that you want to show off your unusually high pre money valuation. Thats great. But dilution ain’t your primary concern. And beating you’re buddy’s deal terms certainly ain’t a concern. You’ve got one job — build a fucking great company that you’re proud to have started. That means surrounding yourself with great people — employees, advisors and investors. That’s right, you’re adding a partner to your team when you raise. Hopefully you’re building something truly great and your investors will be along for the ride. Hopefully this isn’t the first time you’ve received this advice. And if it isn’t, it worth repeating — your investors are your partners.
I asked a few experienced folks the following question: What do you consider the top 3-5 traits to look for in an investor — especially during the seed and series A raises. Here are two responses:
Brenden Mulligan: “For me, I wanted someone with experience in the space we were in, someone who had been an operator, firms with deep resources and solid product people. So everyone we raised from had to provide specific value. We didn’t worry about valuation. I think founders get way too tied up worrying about that.” Check out his post here for more detail.
Founder 2: “At the seed stage I really look for investor advisors, so not just a check and a headache.”
I’ve just been part of far too many late night calls with hand wringing over taking a $6M vs $5M cap or fighting over option pool numbers. Don’t get me wrong, the investors are optimizing ownership and so should you. But I’m just advising you to keep in mind the big picture beyond the numbers in the term sheet. You wouldn’t hire your product manager because he was the willing to take the lowest salary, right? You pay that guy fucking top dollar (after negotiating of course) because you’re betting on creating more value. Same with your investors.
I know most folks will have heard the term “smart” money. It feels like the meaning has been watered down a bit. Many folks I talk to think they’ve met that threshold if they raise from a “VC” or investor on AngelList. But that shouldn’t be it. Partnering really has a lot more meaning and certainly a lot more value to you and your company over the long term. Partnering means looking beyond the dollars and finding extra value — coaching, mentoring, networking, expertise, etc. (more on that in a later post).
There’s probably a few other traits that I’m missing. But the point is the same — think first about creating a real valuable relationship. And the value of any particular trait will definitely be weighted differently depending on your circumstances. That might mean taking a discount on that round or making room in the round (and taking dilution) to bring in that other angel investor.
REALITY CHECK: If you find yourself fundraising and struggling with finding the right “partner” (or even the right structure), consider yourself very lucky. The reality is that many many folks are not in your shoes. So many are just happy to get any funding at all and keep pushing ahead to better days when they have the luxury of thinking about a “partner.”
