The other week I met for lunch with a founder of an early-stage fintech platform that recently joined the GingerBread Capital portfolio.
The founder, a seasoned serial entrepreneur, had recently closed on a nearly $10M Series A round in which we participated. I wanted to get to know her better. I wanted to know what motivated her to start this particular venture and bring to market a product that resonated personally with me, as many of our portfolio companies do (that is, provide practical solutions to consumers and to businesses).
I also wanted to know more about:
- her strengths as a CEO.
- what her talent roadmap looked like.
- how she was managing cash and thinking about growth.
- what was keeping her up at night.
- and, how we could help her.
After we ordered, I was surprised when my lunch companion made a confession:
Of all the investors on her cap table, she said, I was the first one this founder had personally met with after closing the round to talk about…her business. That is, having a conversation that moved beyond the pitch deck and the term sheet to dig into the actual day-to-day issues and challenges she was facing in positioning her startup for growth.
There’s no one type of venture capital investor. We come in lots of different shapes and sizes. Generally speaking, however, fewer venture capitalists have backgrounds as startup founders or have the day-to-day operational experience of running a growth-oriented startup themselves.
One of the things I have most enjoyed in venture capital is sharing my own experience as an operator with other founders. Among the many assets of GingerBread Capital is, we don’t stop after the check is written. Our team invests our individual expertise, along with our business insights, our networks, and our time to the founders in our portfolio. We don’t require a board seat or a formal advisory role. Rather, we are invested in helping founders get the support they need to be successful, when and where they need that support.
The best companies, and CEOs, I have found, will surround themselves with investor thought partners.
Our advice is simple: Choose investors who will invest in your mutual success.
Especially in the early fundraising rounds, founders should seek out investors who:
- know your industry,
- have a great track record of collaborating with founders, and
- can empathize with the founder’s journey, team building and path to entrepreneurship.
Here are five questions you need to ask when you’re considering potential investors to bring onto your cap table.
Question #1: Do they have operating experience?
Has anyone on their team built a company themselves? Have they ever hired talent, fired non-performers, or had to pivot? Do they understand your business’ supply chain issues, or how to set up a customer service center, or suggest winning strategies that expand your reach to more customers? You will want investors on your cap table who can roll up their sleeves and help you solve problems unique to your company and your industry.
Question #2: Will they share their funding network with you?
Collaborative investors will leverage their funding network to make connections for you. They may not lead the deal, but they have the ability to introduce you to other funds that are potential leads, and bring in other co-investors.
Question #3: Can they help you build your team?
Can they assist in structuring the kind of team that can grow with your business? You want an investor who has a track record for motivating teams, attracting talent, and building up morale-—and knows how to elicit excitement and excellence from employees.
Question #4: Can you call on them for advice when you’re unclear about the best way forward (especially with your board)?
Think about who you want to be your first or second call when an issue comes up. You’ll want investors who can serve as trusted advisors, with whom you can talk candidly about problems and issues that may come up with your board. Seasoned investors who have both board experience—as well as having had to answer to a board—can be instrumental in helping you get clarity on thorny issues from governance to human resources, so that you can proactively present solutions to your board.
Question #5: Can they help you position your startup for future deals?
Have your potential investors had any startups go to acquisition or IPO? Do they have experience helping startups position themselves for the correct next thing? Whether it’s the next funding round, a private equity buyout or a leadership transition, founders need investors who can see the long game through and advise how to position your company for the best possible outcome.
And, one more thing. You’ll also want to have on your cap table the type of investors who, when you invite them to lunch, they’ll say:
“Yes!”
***