Fundraising – Angel Investor Perspective
The purpose of this post is not to patronize you on how to fund-raise. There are plenty of places all over the internet where you can learn that.
My goal is to encourage you to reflect on your startup’s future cap table and more particularly on how you will take advantage of your potential investor base beyond money, i.e. what will be their added value?.
As one social entrepreneur that raised over $10 million in funding for her social enterprise said ‘”… find people who don’t just write checks. Instead, find people who can actually help the business grow“.
Concentrated number of shareholders
You may think that potential investors, particularly those that may come on board in future larger rounds such as VCs and corporate investors, would like to find as part of their due diligence, a cap table with a concentrated number of shareholders. This may be true but is not necessarily rational. As long as they have their investment protections in terms of voting and control of the company well protected, there is no reason to reject an atomized shareholder base, specifically if they do not vote or act as a class.
Also, you may not want to burden yourself with the multiplication of administrative tasks associated with having a larger number of shareholders. As a founder recently told me “We’re trying to be light on the number of investors to reduce admin and O/H expenses when managing the cap table and investors“. But is a minimal number of investors and mitigation of operational expenses really the best way to add value for a startup looking to raise seed capital?.
Furthermore, the investor’s expectations must indeed be managed. You need smart money that can help you grow the business. You may think that if you have too many investors, then you will be constantly distracted from managing the business, but is this necessarily so?.
Managing a startup with a large number of shareholders
Why don’t you automate your fundraising process starting with the standardization of your pitch (deck, video, terms sheet)?. I know that at later stages you are strongly advised to personalize your pitch to the recipient, but at this point, you should be comfortable having a standard presentation that caters to most of your potential investors.
There are multiple ways to get your startup funded. Do you prefer to have a few angel investors in your cap table or should you consider crowdfunding or other collective fundraising methods?.
Have you tried Carta, Captable.io or Assure for the administration of the fundraising process?. I know this might currently seem like a non-productive expense for your startup, but who told you that your investors are not willing to pay for these costs?.
Communication with your shareholders could also be, up to a certain point, automated. Some of the startups in my impact investment portfolio do a great work in this area, e.g. Genuine Impact – has weekly communication via a newsletter and has even implemented an open innovation process.
One Ring to rule them all, One Ring to find them, One Ring to bring them all, and in the darkness bind themJRR Tolkien