By Michael Whitehouse
You've found that perfect startup opportunity on 1000 Angels, the private investor network that connects startups with investors, or somewhere else, decided to invest an amount in the project, and now it's time to help that investment flourish. But just how do you move forward as an investor and maximize your impact on a startup? How can you ensure that you are having a positive effect rather than a detrimental one?
The key is to foster a positive relationship with the founders of the startup directly. This doesn't mean a personal one, but rather a relationship built on a clear understanding of what everyone brings to the table. Depending on how hands-on you intend to be as an investor, you'll need to recognize that your startup will only operate effectively if you make best use of everyone's talents. It may be that you can only contribute in a small manner, or, if you're lucky, the company runs effortlessly and doesn't require your input at all. Regardless, your relationship with the founders of the company and any management team in place, is going to be pivotal in ensuring your investment has the best possible chance of success.
With this in mind, let's take a look at some key areas where you as an investor are likely to play a role.
As an investor you'll want to know that your finances are being used effectively. This requires communication with those managing the startup. Some investors will be happy to interact with management a few times a year, while others will want to keep a handle on things and stay in the loop every week. Whichever approach you take, open, frank, and respectful communication will go a long way to avoiding any disappointments or misunderstandings regarding the direction of the project.
Communication creates trust and ensures that everyone is on the same page, pulling in the same direction. As an investor there may be times that you disagree with a management decision, and in many cases you might be unable to do much about it if you do not have a controlling stake, but even in this situation at least you can be aware of where your money is being spent and how things are proceeding. All you can do is give your input, and the only way that input can be truly effective is if it is based on an informed opinion, one completely aware of what is going on within the business itself.
Unless you own the majority of a startup – and most investors are not in this position – it is important to recognize that, while you have invested money in the project, that you are not running it. The founders who first created the company or had that amazing product or service idea which attracted your interest, generally have a good idea of how to run the business and how to steer the ship. This is where you will have to put your ego aside and put business first. You might want to be involved in every decision, but you have to be honest – if the management in place are more knowledgeable about an associated industry or the daily workings of the business, the chances are they will be better at managing it than you will.
The above, however, is not always the case. In some circumstances a management team may be inadequate or not up to the task. If that happens, then as an investor you can raise your concerns, but even in this circumstance it will result usually in bringing in a new manager to oversee the project. Ego is one of the root causes for a business to flounder, so don't get caught in the trap. Know when to step in and get involved, and know when to get out of the way and let others do their jobs. Always put the business in its entirety before any pride or ego stops your investment from being a success.
We've talked about this previously in our article about how startup founders can better manage their time, but setting goals can be something which will set your mind at ease as an investor as well. By having a schedule and a clear plan of milestones for the business to meet, you can better measure where performance is high or low. It's important to remember, however, that these goals should be decided on collectively, especially if you have little knowledge of an industry or the workings of the business. It may be that something which you believe should take a short time, actually requires more substantial allocation of resources. What's important is to come to an agreed, fair, and reasonable timetable for goals. If, one the other hand, you have the experience and knowledge required to make a judgment on timescales, then absolutely make your voice heard.
A goal could be something which could take a year, a quarter, or a day to reach. Managing this progression brings on nicely to progress updates.
Tying together our previous points about communication and goal-setting, progress updates are a great way to set everyone's minds at ease. They create a sense of urgency and feeling that the business is moving forward, even when accomplishments are perhaps incremental rather than earth-shattering. If you have a business goal which will take 3 months to achieve, receiving regular updates from the business about the progress each week or month will allow you as an investor to know whether a milestone is actively being worked towards.
A set schedule for progress updates can really make a difference and facilitate great organizational communication. It can help identify where there is a problem months before it would otherwise rear its ugly head. As an investor, the real balance to strike here is between receiving so many progress updates that they become redundant or even annoying to founders and management, and not receiving enough to get an accurate idea of where the business is heading. Sensibly regular progress updates which genuinely inform are what should be aimed for.
Positive Relationships are Productive Ones
The above mentioned aspects of investor-management relationships are ones which should be looked on as critical. You, as an investor, should try to foster a positive relationship with those running any startup you are connected to, in a way which uses your talents, and theirs; allowing the business to succeed off the back of good communication, planning, and use of available skill-sets.