Aidi — Founder-investor fit
Founders focus on fundraising and forget a crucial aspect - Founder- investor fit. While it is essential to show an understanding of your product and market, the viability of your idea and how strong your team is to execute and, what you plan to do with the funds raised, it is equally necessary to evaluate the investors you are bringing into your business. If more founders understood that investors can make or mar their business, they will be more intentional about whom they allow into the business. Consider how important product-market fit is. Yep, founder-investor fit is just as important also.
What actually is a founder-investor fit? This can be described as a relationship between a business owner and an investor where the visions and missions of the two parties, align. Here, the investor does not just provide the funds needed by the company but believes in their mission, vision, goals, and the solutions they are providing and gives all the necessary support and resources the business needs to reach its goals. It is simply the degree to which there is a fit between your startup and an investor - who you are seeking funding from. When it comes to founder-investor fit, it is imperative to choose the right ones; people who will go above and beyond to ensure that the business succeeds. Founder-investor fit is a great recipe for the long-term success of a business. The relationship between business owners and investors is usually for a lengthy period and therefore, having the right partners throughout is key.
So then, what should you look out for when scouting for the right investor(s)? There are so many recommendations, but here are a few we consider very important-
- Consider the kind of companies they invest in:
If your business is a financial technology business, then it will be totally unnecessary to reach out to investors who deal mostly with Edutech and SaaS businesses. This is because, they may have funds to give but not adequate knowledge on how Financial technology businesses run and so, will be unable to provide other forms of support your startup will need. It is also important to consider the regions they invest in as the needs of customers differ from region to region. Do they invest in African startups, etc? This will let you know if they have a thorough understanding of the market realities of your region and geographic-specific challenges the region usually faces/ may occur. Moreso, consider the cheque size they write. For example, a $100m fund will be unable to write a $50k cheque- as this won’t work for them. This spares you the time of reaching out to an investor, spending time having conversations and later discovering that they do not give the cheque size you seek for.
You’ve done your research about the investor, read about them etc, the next step will be to speak to other founders/ startups they’ve invested in. The conversation will let you know the investor’s strengths, the ways they usually support other businesses, etc and this will help you know the value and input they will be bringing to the business, how best they can help you and how to can maximise this for business success and growth. You can also speak to the founder to find out their conversation style; do they prefer emails? Calls? This will help you know how best to communicate with the investor; setting the tone for a free flow of conversation and initial bonding.
It is very important that the investor understand the vision, mission and goals of the company and believes firmly in it as much as the founders do. You certainly also want to know if they believe in you, the founder, and your ability to make the business the next big thing. Have conversations around your goals, decipher their responses and see if they will be a fit or not. Remember, beyond the funds provided, having an investor who believes in you and the business will go a long way as he/she or the fund, will take action to ensure that the business succeeds.
We’ve established that value is a priority when looking to achieve founder-investor fit. One of the ways to know the value add an investor will bring is to look at the value they have added to other startups in their portfolio. How did they help them achieve their milestones? Do they have domain expertise in your industry that will come in handy when you need it? Can they offer needed counsel when the business needs it? Can they help out with introductions at necessary stages when it is required? Can they help with follow-on investing? If there’s no value add, then you should not consider taking their money. Also, ensure that there is no disconnect between what investors think value add is and what the founders actually see as valuable.
Sometimes control in a business extends beyond equity owned but the power and control given by the board. At later stages, some investors may become a part of your board so you need to think long and hard about this. Will you be comfortable having this person on your board? If you’ll love to have them on your board then ask if this is something they’ll love to do, early. This is because some are already board members of other startups and may not have the time to commit to yours. Asking earlier saves you the disappointment and helps you consider taking funds from them or waiting till you get another investor who will be a great asset to your company’s board.
There are so many other factors to consider to check founder-investor fit and this differs from business to business and founder to founder. However, one common theme stands out in spite of the differences - Value, beyond funding. Ensure to do your research, speak to other founders in their portfolio and take the necessary steps to ensure that you maintain the relationship when you finally find that investor who is the right fit for your business.