There’s a saying amongst investors’ circles that goes like this: ‘Choose your investors as if you were choosing life-long partners.’ Whilst I’d strongly recommend you do assume this level sobriety when selecting who to bring aboard your venture, the harsh reality, taken with a pinch of the pragmatic approach, is that very few entrepreneurs are in a position to handpick their investors. The key piece of advice then becomes this: ‘Avoid the destructive investors at all costs.’ And I don’t say ‘destructive’ lightly. Unfortunately, the wrong investors really can sink your company – and your dreams along with it.
My firm SyndicateRoom connects ambitious investors with the country’s most trailblazing companies. We launched in 2013, and have rapidly grown to have more than 100 high-growth businesses in its portfolio. We learn a lot for the community that use our platform. Below I would like to share with you some of the most important lessons I have learned throughout this journey.
Spot the bad eggs
First piece of advice – identify the destructive investors. Easier said than done, but certainly not impossible. When I was raising money for SyndicateRoom, I spotted some traits that helped me identify these type of investors.
Firstly beware of anybody investing a small sum, but wanting huge control or a board seat at such an expense to the company that they recoup their investment in a short period of time.
Secondly beware of anybody that gets very pushy about how much value they can generate for the business and uses this as a tool to drive the valuation to the ground, while remaining unwilling to put down on paper how exactly they expect to help the company. I once had an ‘investor’ that promised the world in terms of helping with marketing in return for equity. As it turned out, he never had any plan to invest real money, nor had he any significant marketing background. Luckily I dodged that bullet before it was too late.
After all, if you encounter ‘investors’ that will work for a ‘smaller than usual’ salary (to their hypothetical standards) and take the rest in equity, then you may as well take a high-quality employee. It will end up costing you less and you can let them go if they don’t perform.
Not all that glitters is gold
Second piece of advice – don’t fall for the temptation of taking the money from these investors; they could ruin your chance of a lifetime to build a great business.
In the early days, when SyndicateRoom was short of cash, any equity investor was a temptation. But taking money from just anyone would have been a mistake. Luckily, I followed my instinct and turned down some investors even when we really needed the cash. These were painful but crucial decisions that ended up helping the business further down the line. As a result, we were able to assemble a group of shareholders that are all aligned to the same vision and joined the journey for all the right reasons.
If you have a bad feeling about an investor, don’t take the money. Just walk away. There are other fish in the sea.
Cast your net wide
My final piece of advice is this – take a very small number of highly supportive angel investors and get the rest of the round as passive capital that you can reach out to if you need introductions, particular knowledge or experience, and so on. For example, when I needed some strategic input I reached out to our passive angel investors – of whom there are more than 400 (!) – and got responses from no less than chairmen of top banks in the world, and even a European ex-prime minister!
Like I said – you can’t cherry pick your investors, but by being smart, trusting your instincts and not going for the easy buck, you may just be able to attract the people who really matter.