It’s positive news for those unleashing their entrepreneurial spirit into the world today: first-time investments have more than doubled in the last decade, from 209 deals in 2011 to 551 in 2020, according to a Beauhurst and SFC Capital study, which presents more supply to a market full of hungry founders. Startups effectively have the opportunity and choice to find VCs they can truly align with from the get-go – without caving to demands that don’t sit well with their long-term vision for their business.
Having recently secured investment ourselves, I know ensuring startup-VC alignment can feel like walking on a tightrope – and there are lots of things to consider from values and cultural nuances, to practical ways of working. The good news is that the investor pool is slowly diversifying and, for the startups willing to look further afield and be specific about their asks, there are investors who can offer much more than a healthy cash injection.
The personal foundation
The first step is to find an investor who aligns with your values and that begins by interrogating who you are as a founding team and what you stand for as a business. For example, there were two aspects that were particularly important in guiding our investor decision – our core business values of transparency and honesty and the fact that we are a majority female-founding team. We wanted investors who didn’t just pay lip-service to these values, but who live and breathe them and that’s why we went with female-led Capital T. It is important your cap table reflects who you are so don’t be afraid to dig under the surface.
Confident in the knowledge that you have your focus and requirements, conversations with investors can be much more frank. Convey your convictions openly and don’t be afraid to do so – if the VC is right for you, they will wholeheartedly buy into you, your philosophy and your vision for the business.
However, don’t forget it is a two-way street. Entrepreneurs are perfectly within their rights to have certain expectations, but it’s important not to be unreasonable or too demanding. In the same way founders are parting with a percentage of their business, investors are providing the funds and expertise necessary to take the business to the next level.
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The professional building blocks
With values firmly in place, the next step is to make sure you are on the same page when it comes to the business roadmap and growth plans. Misalignment here can quickly cause friction and disrupt the relationship so it is better to over-communicate. It is also worth bearing in mind cultural differences when choosing your investors – for example, some investors will want to see ambition in your business plan, while others will be looking for realistic growth projections.
And finally, don’t forget that investors bring with them a wealth of professional and operational experience too. Look at where you have gaps in your team and where you need additional support. For us, building a company culture that aligns with our values was really important but we were missing the HR expertise in our team. A big draw to our investors was their collective offering skills, but also individual strengths too, such as CapT managing partner Eva de Mol’s PhD in organisational psychology which we knew would be an asset to the team from the outset. Be clear about what you need as a business to grow – the people you hire early on reflect what you stand for as a business and that includes your investors.
The playing field between investors and startups is levelling but to keep it this way, startups need to make sure they don’t compromise on their core values for cash. This will not only future-proof their businesses, but also attract the loyalty from consumers and employees and prove that making values-driving business decisions makes good business sense.
Written by Namrata Sandhu, CEO and Co-Founder at Vaayu