Spoiler alert: It’s not all about money
If you’re an entrepreneur thinking about taking on investment for the first time, don’t feel tempted to binge-watch Dragons’ Den.
If you speak to business owners who’ve raised capital – as I did at Amadeus’ showcase event – you’ll find that in reality, the dynamic between investor and start-up is nothing like that depicted by the BBC show. Power does not only reside with the purse string holder.
I often hear advice given to start-ups on what investors are looking for. Hardly ever on what matters to the entrepreneur. What’s clear from my conversations is that personal chemistry really matters.
A venture capital investor may join the board of a company they back and will keep a close eye on its operational and financial performance. It’s not surprising then that relationships are important.
Mark Smith, CEO of Contact Engine, echoed many others when he said, “Having a former entrepreneur in the investor group makes a big difference; they can help you through the ups and downs of building a business.” Robbie Hughes, founder of Lumeon, agreed: “It’s ‘lonely at the top’ and an investor who’s been there can help you make the hard decisions.”
Exonar CEO Adrian Barrett added that in the USA, more entrepreneurs are involved in late-stage financing. In Europe, growth capital is dominated by investors who focus on financial metrics rather than sharing the founder’s “love of product”. On the plus side, Adrian did feel that “this situation is getting better”. Owen Nicholson, CEO of SLAMcore, is drawn to investors that “truly understand our technology. You can tell when they ask insightful questions during intro meetings.”
Entrepreneurs also value an investor’s network. Owen at SLAMcore has found many VCs over-promise on their corporate contacts (to help the start-up win business). In the deep-tech world, more useful can be academic or research contacts. Nick Lench, CSO of Congenica, spoke of the expertise he gathered on artificial intelligence (AI) via Amadeus’ network of portfolio companies. ContactEngine’s Mark Smith was introduced to AI experts at Imperial College that have helped develop the company’s intelligent communications platform.
While things like “unfair term sheets” or “impenetrable structures” are off-putting, entrepreneurs are prepared to turn down investors for entirely non-financial reasons. This is the lesser known dynamic behind funding rounds and should help give confidence to founders seeking mutual respect in their dealings with investors.