There’s a disconnect between reality and the added value investors are promising entrepreneurs. Three in five founders who were promised added value by their VCs felt duped by their negative experience.
While this feels like a letdown by investors, in reality, it shows fault on both sides. Due diligence isn’t a one-way street, and founders must do their homework to make sure they’re not jumping into deals with VCs who are only paying lip service to their value-add.
Looking into an investor’s past, reputation and connections isn’t about finding the perfect VC, it’s about knowing what shaking certain hands will entail — and either being ready for it or walking away.
Entrepreneurs are increasingly demanding more than a blank check: They want mentorship, product understanding and emotional support, as well as industry connections and expertise. If VCs can’t bring that value, founders now have plenty of other funding routes to choose from, like crowdfunding, angel syndicates, tokenization and SPACs.
To stay competitive, VCs have to at least advertise that they have more than deep pockets. But what if it stops there? Founders have to know exactly what they’re looking for in a VC, which means looking past the front page and vetting their investors.
The ideal investor for modern startups is an operator VC — someone who was a founder or operator at a company before becoming an investor. But even then, ticking boxes isn’t enough to ensure the investor won’t come with their own challenges, like being too hands-on or less strategically minded.
Looking into an investor’s past, reputation and connections isn’t about finding the perfect VC, it’s about knowing what shaking certain hands will entail — and either being ready for it or walking away. There is no single solution to this issue, but here are my recommendations to founders seeking a successful investor relationship in 2021.
Have a guiding framework
No founder-investor relationship can survive misalignment. Because you share responsibility on so many processes, both parties have to be on the same page. So before you even start fundraising, nail down the expectations you need your future investor to meet. What do you need the most? What does your dream investor look like?