FEEDING YOUR STARTUP | The Importance of Choosing the Right Angel Investors and Investment Strategy

Today we have a post from our deal flow manager, Sheila Lamont.

At the last two of our Summer Learning Series events, some angel investors shared their own perspectives and experiences. Surprisingly enough, the advice seemed to circle back to the concept that the process for choosing investors (and co-investors) needs to be given as much attention and priority as the process of vetting potential startup investments.

As one presenter, Dr. Floyd Taub – physician, entrepreneur and angel investor – wisely analogized – having a startup is like having a baby.  Exactly what and how much you feed it (as well as who might be feeding it) is very important.  As Dr. Taub said:

“Entrepreneurs need to be re-educated from the frequent initial thought that they are ‘selling their baby’ to understand that they are selling paper in order to ‘feed their baby’. Not only do babies frequently starve, but those who are underfed, may be stunted or at least have a significant and costly growth delay.”

I’m a real fan of analogies, so this really resonated with me. I thought I’d embrace my analogyitis and take this a step further with a few examples that can apply to both babies and startups…

  1. Don’t feed it too much. When my son Tom was only a few months old (and weighing almost 11 pounds), he just couldn’t seem to get enough to eat.  So, against popular advice, I made the mistake of incorporating a little cereal into his liquid diet.  The results were not pretty. Who knew spit up could travel so far? I quickly learned my lesson and reconciled myself to slow and steady feeding, and a few more months of sleep deprivation.Sometimes having an investment opportunity that goes for measured and steady early funding is the one with the greatest potential for success. Slow feeding can help startups avoid giving away too much of the company and create a more focused approach to an entrepreneur’s business strategy (as opposed to having lots of money to go after all of those shiny, but distracting, objects!).
  2. Don’t feed it too little. Yes, this does sound contradictory, but every baby (and startup!) is different.  My sister made the mistake with her firstborn of following the one size fits all advice that was popular at the time.  She put my niece on a rigid, every four hours without deviation, schedule of feeding.  Since babies can’t talk (but boy can they cry!), there were many sleepless nights before everyone figured out that a greater amount of food was needed.A financial plan that takes on smaller investments over a longer period of time may be a better road to take for some startups, but it can lead to perpetual fundraising for others. A path ahead that requires another raise at every turn can be highly distracting for entrepreneurs and a discouraging concept from an investor standpoint.
  3. Pick your feeders wisely. Picture a house where there’s constant disagreement about what and how much to feed the baby.  Lots of stress and arguments will ensue and the baby’s diet and feeding schedule will vary depending on who feeds him/her. The cohesiveness of the family will go right out the window.Looking for investors who have similar goals with each other and with the entrepreneur (think people, planet, profit issues) can go a long way to reduce distracting and time-consuming disagreements.  Companies that get along accomplish much more in far less time.

Again, as any parent will attest, each baby has their own unique needs and startups are no different.  Taking care to consider how much food a startup will need and by whom it should be fed is very important!

In closing, a few more words of wisdom from Dr. Floyd Taub:

“The ideal situation is a board and a group of investors who understand the industry and challenges a company faces, and who have committed the funds to reach the next milestone and the typical runway needed to get the next big funding.  Mechanisms to prevent changing of the project or adding significant distractions are important. Each potential alteration must be evaluated with specific understanding. Typically some changes are in the best interest of everyone, thus money to explore some variations is needed, but being distracted by every new possibility is deadly.  No surprises here. Care and feeding is critical to success.”

What do you think? Have you had any positive or negative experiences feeding a startup?

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