Seasoned investor Pip Wilson shares her advice on how tech founders and angels can work together and form a symbiotic relationship.
When it comes to the success or failure of any startup, the relationship between early-stage investors and founders can be an important factor. Without trust and mutual respect, an open dialogue and a clear understanding of the investor’s level of involvement, startups are less likely to make the grade and become a success.
It’s key when entering into a relationship that both the founder and investors are clear what the ideal outcome is. If an investor is interested in an exit within five years they aren’t the right fit for a founder that is looking for a longer term slower growth model. Although no one can predict the future being transparent about the goals from the start is key.
In the same way there needs to be clarity as to how active an investor wants to be and how welcome the founders are to this involvement. Founders have a level of passion and involvement in the business that is unique. They have come up with the idea and it is often their one and only focus. They won’t have got to position of raising investment without talent and drive, but they may have areas where they are inexperienced or naive.
This is where the right investors can make a big difference as long as founders are open to the insight.
Level of involvement
Sometimes this agreement between an investor and a founder takes a formal shape. Some founders and investors prefer to bring more structure into the relationship – for example, by having an investor ‘board’ or an investor on an advisory board. This may or may not be a contractual relationship, but it is a signal that the founder is expecting a much more hands-on approach and will be tapping into your experience where possible.
If a company gets a large amount of venture capitalist funding then the relationship will be very different. VCs tend to want a seat on the board and more regular catch-ups with investees. In many cases, VC funding can be much greater than angel investments, so it’s to be expected that some extra level formality will enter the picture. The problem with a more hands-on approach is that it changes the role and reduces the input of the founder, which can sometimes erode the character, ethos or mission that made the startup attractive in the first place.
By having the discussion on what the founder is looking for and what the investor can contribute right from the start you can set the relationship up for a greater level of success.
Mentoring: how to get it right
Being hands-on is not the same as mentoring. Mentoring is about providing guidance from a place of experience, not about claiming to know everything or telling someone else how to do their job. In a healthy investor-founder relationship, the founder will have an understanding of their investor’s background, expertise, and areas in which they can add value.
But the flow of information should go both ways. Founders should send their investors regular updates. These exchanges give both founder and investor and opportunity to ask questions and make comments.
Even if monthly updates were not agreed from the outset, it’s my view that they’re still something founders should proactively send. As an investor, I’d far rather read a short, regular update than two pages every six months or when the company is trying to raise again.
Regardless of the level of involvement an investor has, gestures like this are a signal that a founder is transparent and enthusiastic about the relationship. In this respect, the investor-founder relationship is like any other: long periods of silence and a lack of communication can only damage it.
Though there are certain guidelines that angel investors should follow, as an investor, you can’t take a blanket approach to every project. Each and every company is different, and that needs to be respected. One of my investments, for example, is effectively a consultancy – an area in which I have experience – which means I can offer guidance to a greater extent than I might do with some of my other investments. The important thing is to understand what your role is but always to make yourself available to help.
The parallel between investor-founder relationships and everyday relationships between friends or partners should not be underestimated. Angel investors –founders, too – are all unique and, importantly, people! And, as we all know, the best relationships are the ones that are based on good communication.