How to get the most from your investors

By Benjamin Chong

Your business’s ideal investor will bring more than money to the table.

During the recent Vivid Sydney festival, I moderated a panel of technology startup founders on the topic of how to get investors to work for them. Alec Lynch from DesignCrowd, Emily Yue from Expert360, and Tessa Court from IntelligenceBank shared their experiences around raising capital and working with investors after they’d received funding. What emerged were a few common themes and examples.

During the fundraising process, it’s important to understand the background and preferences of the investors you’re approaching. Some may have deep domain experience in B2B software, while others may have experience in consumer hardware. Some write lots of small cheques, while others take one or two larger bets a year. If your business type and investment ask doesn’t match an investor’s preferences, they’ll say no very quickly.

One way to better understand an investor’s preferences is to check out their portfolio of businesses on their website. This will provide you an idea of their preferred type and stage of business. If you’re approaching an angel investor who doesn’t have a website, their LinkedIn or AngelList profile can be helpful.

Once you’ve found investors whose preferences seem to match your business type and investment ask, it’s valuable to speak with founders they’ve backed. These founders can confirm if you may be a match. They can also provide background on how these investors can help after the raise is completed. What have they done to assist? Have their promises been kept post-investment? What’s their reputation? Are they passive or active investors?

Some investors are passive, which means they’re happy to write you a cheque and then let you go on your merry way without their involvement. They’re happy to receive your regular email updates and won’t call to request meetings with you every week. They may even write follow-on cheques in subsequent financing rounds.

Other investors are active, and they may even want to play a role as a board director. This can be beneficial if they have specific skills or domain expertise related to your business. For instance, Alec Lynch mentioned how one of their investors had been involved in a similar business and was able to share lessons on sales strategies to avoid. Other active investors may not want to be a board director and instead provide introductions or assist in specific projects. It is common for investors who hold 10 per cent equity or more to request a board seat.

I’ve found some of the best conversations between board directors and founders occurs outside of the boardroom.

For early stage businesses, it’s important for board directors to provide practical advice and feedback to founders. I’ve found some of the best conversations between board directors and founders occurs outside of the boardroom. Whether it’s the Monday morning call to discuss alternate ways to approach sales prospects or the Thursday afternoon to work out how to manage difficult team members, the mark of a high quality board member (or investor for that matter) is one who’ll be prepared to roll up their sleeves and provide wise counsel.

I’ve seen founders provide favourable investment terms to highly active investors, be it in the form of a lower valuation, bonus shares, or options. Either way, it’s important everyone’s aligned to building the long term value of the business.

Good investors attract other good investors. Tessa Court mentioned how one of her early investors was instrumental in the closing of subsequent rounds of financing. Having seen the business successfully develop, the investor was able to contact fellow investors and vouch for the founder and her team’s performance and potential. His strong support allowed the next round of financing to be completed without extensive delays.

Good investors tend to have relationships with other investors, be they individuals or venture capitalists. They can provide feedback to founders on the most suitable investors for their business and suggest the ideal makeup of investors for a round of financing. Sometimes it makes sense for there to be a single investor in a round of financing, while at other times it may be better to have multiple investors in the same round. They can also provide advice on the milestones the business should achieve to match valuation and funding size expectations.

While it’s important to get the attention of investors and attract their investment, it’s more important to attract the right investors who can add value to your business and help propel you to success.