I recently had the pleasure of sitting on a panel at the Three Rivers Venture Fair in Pittsburgh that focused on both the entrepreneur’s and investor’s perspectives on how the best investors help startups through the tough times and the good times.
At JumpStart Ventures, we’ve built institutional knowledge over the last two decades helping entrepreneurs build sustainable companies and get to successful exits. We’ve done this by working with companies through the highs and lows, learning from our mistakes and building upon our successes. We’ve also helped entrepreneurs by partnering with industry experts in our backyard and throughout the state – like Key Bank, University Hospitals, and angel investors in our dedicated Advanced Manufacturing Fund, that can help entrepreneurs with meaningful, early feedback that leads to commercial partnerships and opportunities.
In this blog, I’ll share how entrepreneurs like yourself can identify what qualities to look for in a potential funding partner to ensure you partner with someone who can help you through the ups and downs of this roller coaster of a ride!
Choosing appropriate funding partners is critical to a startup’s success. Not only can they provide access to capital, but they can provide services and connections to help a startup grow and succeed. In the Seed to Series A stages of a company’s development especially, which is where JumpStart Ventures’ funds are focused, this is even more important because these relationships will last 5-10+ years.
Quality investors should:
So, how can you determine if an investor is going to be able to pull their weight? It is essential for you to run your own due diligence on each investor you approach. Approach finding and securing an investor like you would find and secure potential customers. After all, it is a sales process—you’re selling equity in your company to buyers (i.e., investors). The first step is to evaluate your business against their funds’ thesis and determine whether your business and values are aligned.
For a founder, the key areas of due diligence on an investor should include:
1. Validating that the investor has experience in your industry. Ask them questions about their perspective on the market you are tackling and the connections that they can bring to the table.
2. Confirming that the investor has a shared vision for growth and success. These are long-term partnerships and being true to your goals and aspirations is important. Talk with prospective investors about what future success looks like from their perspective.
3. Asking for and verifying references of entrepreneurs who received funding from that investor. What are their experiences with that investor during the good times and the bad? How has the investor added value to their company? Does the investor have high standards of integrity, take responsibility for their actions and make decisions based on principle rather than short-term success? You want to work with investors that have a strong reputation amongst entrepreneurs they have invested in previously.
4. Learning about their approach to problem-solving by asking their perspective on what potential risks they can foresee for your business that you may not have identified. Do you feel like you could have honest, open conversations with that investor during the good times and the bad?
To sum it up, consider this: Like all partnerships in life, you need to be discerning and evaluate your choices. Don’t sign that term sheet in a rush to get capital if you haven’t completed your own due diligence.
The right investor can make all the difference for a startup. Access to capital, mentorship and guidance, and a strong network of connections and services are all critical components of a successful, authentic funding partnership.