Supporting – Early Stage Investing Series

Once a deal has been made by the angel investor, the next step is performance. The degree of involvement that an investor has in a business, however, varies widely for a number of reasons. For instance, if an investor doesn’t have practical skills to offer in the operations and growth of a business, he or she may elect to become a silent investor and merely contribute funding to the venture. On the other hand however, an investor who has a high level of knowledge about an industry or process may desire a more hands on, supportive-role to the entrepreneur. But how do you strike the balance between supporting your investment and allowing for the rest of the team to have healthy autonomy?

Understanding the difference between roles

When you are an entrepreneur, your task can be anything and everything. From working countless hours on the front-lines, to running the show consistently behind the scenes – the work is never done and nothing is off limits. This should be contrasted by the support role that an investor takes. Instead of being involved in daily operations, the company will typically be better served by a supportive, coaching investor. Their task is to provide the entrepreneur with the resources needed to do their job effectively. Additionally, the investor can serve as a power for smoothing roadblocks that may be either impossible for the entrepreneur to solve, or else simply too time consuming.

Accomplishing “value events”

The authors of Winning Angels write in their book about the importance of something called a value event. These can be thought of as key-success milestones that happen during the lifespan of a business. For example, gaining a strategic partner, setting up effective advisory and executive boards, cash flow break-even, and countless others are all value events that the investor can play an instrumental role in executing. By focusing on larger, macro-events like these, a two fold benefit comes along. First (and quite obviously), these events impact the return on investment and general well-being of a business to a high degree. But second, when an investor is devoting their time and resources to larger events, the team beneath them will be freed of the chains of micromanagement. This will, in turn, result in boosted productivity and problem solving from your employees.

Finding your place within the culture

As we have examined, being a supportive investor in a company can be more difficult than it sounds. Act too little and you risk starving the company of precious resources you could easily provide. Yet act too much and your presence could become a burden if people begin to view you as a micromanager. The best investors will play on the strengths of themselves and the rest of the people involved in the venture. As such, it is wise to create a dialog with the entrepreneur early on about what kinds of daily impact he or she would like you to have. As George S. Patton once said, “Don’t tell people how to do things, tell them what to do and let them surprise you with their results.”


Sources:

David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

Pozin, Ilya (2013). 20 Leadership Quotes To Make You Laugh. Forbes.com.

What did you think? Leave some feedback! :)

10 thoughts on “Supporting – Early Stage Investing Series

  1. This chapter on supporting is really important to startups. It is crucial that entrepreneurs know what role investors can/will play in their startup. I believe if an investor does not fit in with the culture of the startup or the management team then the chances of a successful relationship are sim. Great post.

  2. This chapter is my gold. I like how you refer to it as performance. This is such a true assessment. Thinking of the value events as key success milestones of a business is also great. This helps me think through the milestone section of my business plan differently. I appreciate you sharing and shedding light for me.
    Nicole

  3. Hi Austin,
    Great post! Knowing what everyone can contribute can help determine the role that they play in the venture. Some investors not only bring start-up funds but also a vast amount of knowledge to help the company succeed.

  4. Austin, I agree with you about the support role of an angel investor. You do not want to micromanage the entrepreneur and company. I think playing on the strengths is the best way to go and showing support and encouragement is the best way to go.

  5. Austin,
    With the news this morning about the resignation of the founder of Uber I think this chapter is one of the most important ones.
    https://www.nytimes.com/2017/06/21/technology/uber-ceo-travis-kalanick.html
    I imagine if the relationships investors had with Mr. Kalanick from the beginning were better perhaps he and Uber would not be in the position they are right now. Mr. Kalanick’s idea was brilliant yet he could have definitely used some support on managing the growth.
    Cece

  6. Value events can be beneficial if you reach one of these milestones before seeking investment. Some companies can start with a small business loan and grow to a point where they don’t have the capital to fulfill orders (a good problem to have!). This is where investors can see that a value event has already happened and feel more confident about their investment.

  7. Austin,

    Great post! It seems like it would be beneficial to find out what the investors strengths are and know what you need help with and try to find the best match to support you. Also to find an investor that is willing to help and support you and not just invest and sit but also not micro manage your business.

    Thanks,

    Mackensie

  8. Good Afternoon great post Austin, I think that if you had a investor that was hands on it can be good an bad. Good, if your investor is able to understand structure of the He has a wealth knowledge
    Great Post

  9. Great Post! Support can mean so many things and to have someone backing you up is great as an entrepreneur! Like you said if they can support and help with the value events, that will leave you more time to more CEO/owner roles. I think starting off with asking these questions before you commit to an angel investor is very important. You need to build relationships that will continue to support each other and the business.

    ~Christina

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