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Michael MassadVice President

What Should Founders Look for in Investors Beyond Capital?

When it comes to raising capital, founders essentially take on a second job—and if it’s your first time going through the process, it can feel especially time-consuming. While there’s no “right” number of investors to reach out to, often the best place to start is with inbounds in your inbox. The hope is that at least half of these turn into meetings, and you can expand the list from there. This process often takes months (and that’s in best case scenarios!).

Given the arduous nature of fundraising, it can be tempting to jump at the first offer you receive. Here’s the thing: The right investor is about more than just the financial investment. If you enter the process with this mindset from the beginning, you’ll save yourself plenty of time and energy during negotiations—not to mention set your company up for long-term success.

With a record amount of “dry powder” (committed, but unallocated, capital) in the market today, founders have plenty of options available to them. All money is green, but not all partnerships are created equal. In the past few years, investors have recognized that they need to offer more than money to stay competitive, leading to the rise of “the platform” approach—in which funds offer community, connections, and resources, too.

Since your investors will have a strategic say in the direction of your business, it’s important to consider how the relationship will help your company thrive with resources beyond a check alone. Here’s our perspective on what qualities to evaluate in a potential investor beyond their financial investment.

Alignment on your exit goals

During the fundraising process, founders are often looking for investors who believe in the vision of their company. But beyond support for your big idea, you also want to find alignment on how to get there.

The traditional “billion or bust” and growth-at-all-costs mentality of Silicon Valley isn’t the right approach for every startup. That’s why prioritizing alignment with investors—and seeking out the right type of funding—will save you significant time during the fundraising process. Consider the below questions, and then find investors with a similar approach to growth.

  • What are your ideal milestones and goals for the business?
  • How quickly do you need to grow to reach your next milestone?
  • How long do you (the founder) want to continue to oversee day-to-day business, be involved at a high-level, or be involved at all?
  • Do you want to offer equity or explore non-dilutive funding options?
  • What would a successful exit look like?
  • How important are liquidity opportunities along the way?

Today’s startups have a diversity of exit options—from growth equity to private equity buyouts to strategic acquisitions—and a host of different ways to reach the right one. Our founder Chris Pacitti recently participated in a webinar with other investors, where they each shared their unique perspective on how to choose the right kind of growth capital for your startup: Elsewhere, for example, offers flexible capital for balanced, sustainable startup growth, while Silicon Valley Bank offers venture debt financing—a non-dilutive capital source that can complement an equity round.

Access to a (hyper-relevant) network of experts

Founders, especially bootstrapped founders, are used to wearing multiple hats: In the span of a day, you might write code for a new product feature, cold call a customer, and run revenue projections for the next three years. While part of the thrill of being a startup is doing something you’ve done before, your efforts can go much farther when paired with experts who have actually done it before.

That’s where a strategic board of directors and mentors comes in. A firm often takes a seat on your board as part of their investment—and while every VC has a network of high-achieving individuals, not everyone’s achievements will be applicable to your business. Let’s say an investor boasts numerous other active board appointments of successful companies. While the resume is enticing, their time might be spread thin and the incremental value they can provide to your business is diluted by all the other companies they have to stay in constant contact with.

Instead, you want to look for investors with a hyper-relevant and targeted circle of contacts, such as Thoma Bravo’s notable rolodex of operators or Elsewhere’s circle of Operating Advisors. Ask questions about how these networks fit your company’s stage and specific challenges, such as:

  • How many people have experience with the stage of your business?
  • Are they familiar with your target customer or industry?
  • Do they have a network of talented Operating Advisors to help you tackle specific challenges, like go-to-market, content strategy, or product-led growth? Are they actually available to talk through your challenges?

A community of peers and resources

Startup life can be exciting, but it can also be stressful and isolating. It’s helpful to consider whether a firm offers access to a community of like-minded founders to guide your growth—as well as offering opportunities for professional development and discussion.

One of our favorite recent examples of community-building comes from the firm Georgian, which invites their portfolio companies to list their customers on a shared portal—since none of the companies are competitive—so they can make warm introductions for each other. Other firms offer exclusive networking and educational events for portfolio companies, like our virtual Elsewhere Summits featuring experts from our network speaking on their area of expertise—from CTOs to CMOs to customer success leaders. We also have a shared job board, where our portfolio companies can post and share new open roles.

It goes without saying that you should admire an investor’s current list of portfolio companies. But it’s one thing to be in good company on an investor’s website, and it’s another to actually have the opportunity to collaborate and communicate with that company (or, in this case, companies). Explore what opportunities an investor provides to network with your fellow founders—from swapping stories of successes and failures to recommending analytics tools and more.

Finding the right investor is about more than money

There’s much more than money at play when it comes to your performance and valuation. While success largely depends on a strong product, the right investor can make or break your company’s potential to scale.

Remember this: Today’s market is a founder’s market, especially for software companies. By prioritizing investors who offer strategic alignment, expert guidance from relevant individuals, and a supportive community in addition to funding, you’re sure to find the right partners for your startup’s journey.

Have more questions about the financing process? We’re launching a new series that honestly and transparently addresses founders’ capital and fundraising questions called Dear Investor. Submit your questions here.

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About the Author

Michael Massad

Michael is a software investor at Elsewhere Partners where he co-leads all sourcing and diligence efforts in the IT infrastructure and cybersecurity sectors. Michael strives to connect capital and operational expertise with growing software companies across industries that are located outside of traditional VC hubs.