In Which Country Should I Incorporate My Company? by Carlos Eduardo Espinal @cee
An important decision that companies often ask when starting a company outside of the USA is ‘where should I incorporate?’.
The reason why this question comes up is often because there are a series of benefits pulling founders in different directions and many times founders can receive conflicted advice from well-intending advisors. Some of the issues that founders may be balancing as part of a decision on where to incorporate include things like tax implications (tax breaks or penalties), local grants, and paperwork. This is particularly the case when they are also thinking that the USA might be where they will end up in the future.
Therefore, the purpose of this post is to identify WHAT ISSUES to think about when making the decision so that you can feel more confident about it and it is NOT about recommending a specific jurisdiction to incorporate.
Let’s start by stating that, for the most part, incorporation decisions aren’t necessarily permanent. Yes, there are cases where you make things increasingly hard for you to ‘flip’ your company (flip = taking your company from one legal jurisdiction to another), but for the most part, you can almost always find a way to move your company later if it benefits you to do so. Generally, the cost of doing this will be proportional to the complexity and legal jujitsu your lawyers will have to do in order to make this happen (more on this later). So while not permanent, worth considering all options before taking the easiest or most obvious choice.
Now that you perhaps feel a bit more ‘relieved’ about the not-so-permanent nature of your decision, let’s look at some key factors to consider which will affect your decisions down the road:
1) Tax implications & Tax treaties – One of the key things that can really impact your personal returns and that of your investors, now and in the future, is whether there will be a tax impact to you (and your employees and co-founders). Consider things such as tax relief on returns as a founder or if you flip to a different geography in the future. Consider income tax liabilities as well as capital gains liabilities (note: links are to UK site, but there for definitions, which are universal). Additionally, for potential future investors, consider whether your local jurisdiction has a negative tax impact further down the line for them. These questions can sometimes be answered by tax specialists within your lawyer’s firm (particularly if your law firm has offices abroad) or your accountants.
2) Investor implications – As mentioned above, one reason why the jurisdiction of choice matters is because investors are optimising around what they know their tax implications are, but additionally, there are other matters in the final legal docs which they may prefer dealing with in their local jurisdiction rather than in new ones they are less familiar with. Additionally, they may have a preference where you incorporate due to tax relief they may receive as part of investing in your company. Company governance may also be affected by where you are incorporated. Certain company governance structures are enforced on your company depending on where you incorporate and investors may have an opinion on that one way or another.
3) Paperwork implications – Paperwork is clearly one of the bigger headaches of making this decision. This includes the interval in which you need to report as well as other requirements such as company filings required by Company’s Law of the country where you incorporate.
4) Residency implications – Some geographies may have a residency requirement for the founders, but others not. Keep this in mind, in particular if you don’t have the appropriate immigration status or it is hard to get it.
5) Human Resources implications – In some countries it may be harder for your employees to move to if necessary, and/or hiring may also be a problem because of lack of human capital or cost to hire and retain. Additionally, there may be restrictions on how you can hire / fire employees that might affect how you upscale / downscale your company’s employees. João Abiul Menano of CrowdProcess also suggests: “One should also considered tax over labor, in some cases a tax incentive given to an early stage start-up can largely help to keep the burn rate low (more important even for companies in which labor costs account between 70% and 90% of monthly expenses)”
6) Governance implications – Corporate Governance requirements tends to vary from country to country. Since you’ll have to abide some of these requirements, you might as well familiarize yourself with these variables before making your decision.
7) M&A implications – When your company does eventually get sold or merged or floated, it’ll have to go through a process. In some countries this process is straight forward and simple and easy for potential acquirers to understand and do quickly. In other countries, it may be less known and thus may cause delays or complications.
8) Free Information Availability – Although you will likely have a Lawyer helping you through many of these topics, it’s always great when you can learn on your own from others’ experiences. Some jurisdictions have more founders sharing on forums and the like, how they overcame their specific problems. This can be a very valuable way of reducing your cost to learn and thus reducing your legal costs as you know which issues to flag to your lawyers.
Having reviewed all of these issues with your current and/or future shareholders, you should at least have a better starting point to make a well thought-out decision.To further elaborate on these topics, and to be more specific about one particularly common case for UK founders, let’s look at UK vs US incorporation.
Tina Baker, of JagShaw Baker breaks down what the key pros and cons are of incorporation in each:
UK Pros –
· Simple to set up
· Form (Template) documents available (Seedsummit and BVCA)
· Good for companies with international investor base – The UK is one of the most friendly of the European jurisdictions
· SEIS/EIS tax relief for investors may be available for your company – helps more investors take an interest in investing in early stage
· EMI (for employees) may be available – helps to attract talented staff
US Pros –
· Well-developed template documents for seed investment (lowers legal cost)
· Lighter touch, more founder friendly
· Simpler mechanisms to issue shares (except for US securities laws)
· Document execution streamlined – can be easier than the UK at times
· Privacy – company information (board, shareholders) and financial information not publicly available for private companies
· Large and seasoned US investor base
· Can sell easily to US buyer via merger mechanism
UK Cons –
· Many US investors will not invest in foreign entities (even if the UK is probably the best 2nd option if International)
· Information about the company (board, shareholders) and financial information publicly available (in some circles, this is seen as a pro….)
· Depending on investors funding rounds can be over-complicated – not all investors are familiar with using the streamlined forms that are readily available
· If you have US investors that are funds, you may be required to give tax covenants/indemnities
· Merger mechanism may not be possible if there is a sale to a US buyer, so exits may be more complicated
· A US listing may be more complicated
US Cons –
· Can be expensive, especially if there is no business in the US
· May not be as easy or as tax efficient to operate in Europe through a branch
· Possibly inefficient tax-wise if not generating major revenue in the US
· US Securities Laws are more complicated
· Filings required with the US Department of Commerce
· SEIS/EIS and EMI may not be available
While this decision is clearly not a black and white one, hopefully, the 8 factors to consider before incorporating highlighted above + the UK vs US example help you better understand how to approach making this decision for your specific case and which questions to ask your lawyers. It may very well be that there are some similarities between the above two countries and your own, but the best way to finalise this decision is by having a conversation with your lawyers about what is best for you, your investors and the jurisdictions in question.
If you have any additional points for founders to consider as they go through this process, feel free to post them in the comments below. Additionally, if you have any feedback on the points above or have a good story to tell about your experience through this process, feel free to post as well.
by Carlos Eduardo Espinal @cee
Product / Market fit can be loosely defined as the point in time when your product has evolved to the point that a market segment finds it attractive so that you can grow your product / company scalably. In many ways, finding Product Market fit quickly allows you to focus on company growth rather than spending a lot of time and money on iterating your product to find that fit. Many companies linger in that limbo for quite some time unfortunately. Without this product market fit, it’s hard to inject nitroglycerin to generate the desired growth rate that all investors want when they invest.
Having spent time with several companies that have gone through the process of finding product market fit, I have observed that many get hung up on iterating only the ‘product’ part of product / market fit, rather than thinking of ‘product’ in a larger context. Speficially, the three things I notice are being omitted by several companies that have been religiously using the “Lean Methodology” product dev model alone to achieve PM fit, but failing to find it are:
1) A definition of a Minimum Viable (customer) Segment – As originally defined by Michael J. Skok 2) The testing of a well thought out positioning strategy alongside the testing of an MVP 3) The testing of a complimentary go to market / marketing strategy that tests your product vis-a-vis the chosen positioning strategy above
If you think of the three above as a bullet, visualise them as the lead pellet (product), the shell (positioning), and the gunpowder (go to market) that makes a bullet work. They only work when tested all-together, not separately. Testing only the lead pellet, doesn’t get your bullet very far.
In order to fit these three points into a more familiar framework, I have borrowed the Lean Methodology’s Build-Measure-Learn loop and expanded on it to create a larger loop designed specifically to help guide you achieve a series of test loops to achieve product/market fit. This isn’t perfect (and would appreciate any feedback on how to improve it) but I figure it’ll help provide a framework by which to test all in conjunction.
Here is the Product/Market Fit Cycle Model I propose (see attachment for illustration at bottom of post):
Start with a Product Hypothesis / Idea
This is effectively the way YOU think of your product the day you conceived it. This should also have the rudimentary aspects of a defined value proposition for a set of customers.
Identify a Minimum Viable Segment (Customer Base)
The concept of an MVS comes from Michael J Skok’s observation of one of the flaws of the standard Lean Model. You can see his work on this here: http://www.mjskok.com/resource/gtm-segmentation. In summary, a Minimum Viable Segment allows you to test your product on a focused segment rather than leaving it too open ended across several segments, each giving your potentially different outcomes.
Questions to ask yourself as you define your MVS: Who are my potential customers? How do I find them? (which blogs, which media, which social networks, which retail locations, which distributors, etc) What will they be willing to pay? (you may not know this off the start, but you’ll be able to determine this as you test it in the next step)
Build a Minimum Viable Business Model
The Business Model Canvas helps a lot in identifying a lot of the components needed for a fully operational Death Star, but what we are trying to test here is more ‘does it work’, rather than filling in all the components of the Business Model Canvas too early, and which you may not know at a start.
The three parts to the Minimum Viable Business Model include: A positioning strategy, an MVP, and a Go 2 Market Strategy.
*Build a Positioning strategy
As you create your positioning strategy, make sure it will resonate with your MVS and product hypothesis, or otherwise iterate these so that they are harmonious with each other. No point in having your positioning not be something that your MVS values, for example. If you are not familiar with what a positioning strategy is, read the following book, it is the gold standard: Positioning by Jack Trout & Al Ries
*Build an Minimum Viable Product that fits the above positioning strategy
Most tech founders generally rock at this bit, so nothing I can really add here. However, take a look at my previous post on growth hacking summarising Traity’s experience in optimising their product to yield better conversions if you want to optimise your product for growth and reduce the potential of your product getting in the way of conversions: http://thedrawingboard.me/2013/04/15/on-growth-virality-loops-and-customer-acquisition/
*Build a Go 2 market strategy
A Go 2 Market Strategy is, simply put, a strategy that attempts to cost-effectively deliver the value proposition to the selected target segment(s). It is a strategy to help get the product or service out in the marketplace and includes pricing strategies, sales strategies, and marketing methods (internet marketing, direct marketing, PR, etc). It can include things like identifying key distribution channels and key partnerships required to get your product to the identified minimum viable segment. Clearly this will be different for B2B companies than B2C companies. The aim is to build a Go 2Market strategy that targets you MVS with your selected positioning strategy for best effect.
Once having completed and packaged the above three in a minimum viable form, assign a “cost” (what money you are going to spend on validating it) to the combination and set some expectations around target figures upon which to analyse your resulting metrics. How many users are you expecting, what constitutes an ‘active’ user? A churned user? A conversion? etc. Effectively, you want to have ‘targets’ for what you experiment will yield.
Test & Measure
As you know, a key part of understanding forensically whats happened after a test, you will need to have set up good tests to start with and also adequate data. A good book on this is: http://leananalyticsbook.com/ I’m in the middle of reading it, but so far it seems in line with what I’ve seen several startups doing.
Tests will include quantitative (Kissmetrics & http://newrelic.com/) and/or qualitative tests about how the product is perceived based on people that didn’t activate. Using the output from your tests find out how your users are behaving to gain intelligence.
However, keep in mind that testing will be different between the different phases of startups in how you can test. In the words of Andreas Klinger (co-founder of Lookk):
I personally see product dev as a spiral. The further you go outside (mature) the more quantitative your approaches can be, the further you are yet on the inside the more qualitative. You repeat the same phases (build,measure,learn etc) but you use different tools.
Most startups are in that inner core of that spiral but play games of outer ends. We can call this premature scaling or just inefficient behaviour (e.g. using metrics when there is no clear data). Many product hypotheses/ideas and especially customer segments can already be eliminated very cheaply before MVPs – eg by qualitative approaches (eg customer interviews).
Metrics are for me personally a bit further down the spiral.
Once you go down the path of metrics, use the Pirate Metrics framework (summarized below) to forensically analyse why (http://500hats.typepad.com/500blogs/2007/09/startup-metrics.html) –
* Arrivals & Acquisition – How many people landed on your website coming from a marketing campaign that you are tracking and then you acquire the user. For a SaaS product, this usually means a sign up. * Activation – The user uses your product. * Retention – What is your churn? How many of the users you have in your userbase are active? How many stopped being active and why? * Referral -How many of the users that are using your product are willing to refer to others? * Revenue -How many users are willing to pay you of the ones that are using the service?
Learn/Debug your Minimum Viable Business Model (MVB – yeah ok, too many MV* acronyms, but too long to spell out)
Questions to ask yourself as you are reviewing the metrics:
Are you having high arrivals but poor Acquisition/Conversion? – Perhaps your Positioning is working, but your product isn’t living up to expectations. Think about this as you talked about a great party but when people showed up they thought the party (product) was lame.
Are you having high acquisition/conversions but poor arrivals? – Perhaps your positioning/marketing strategy is not working, and for those few people that are in your MVS that land on your site by luck, convert because they find the product useful. Perhaps you didn’t allocate enough cash to your Go 2 Market, or rather the cost of acquisition of the chosen MVS is higher than expected so you are just aren’t getting enough eyeballs on the site, but when they do they convert.
Are you having so-so arrivals, and acquisition at your target figure? – Perhaps your Go 2 Market strategy is not cost effective, or you didnt find the most efficient channels. Perhaps you didn’t allocate enough money to the Go 2 Market strategy.
Are you having high Arrivals, high Acquisition & Activation, but poor Retention? Then likely your product is failing in delivering ongoing value. There is something wrong with it. Use product analytics to find key churn out points and qualitative studies to find out what is pissing people off.
Are you having a hard time monetizing? – Perhaps there isn’t enough value in the product hypothesis for the MVS if you can’t get anyone to pay even if they are engaged (not enough of a pain).
No referrals? Well, likely a function of the above as well. Perhaps you haven’t build enough virality into your product (see Juan Cartagena’s work on this).
Decision point & New Ideas
Now that you have the output and a series of metrics and potential red flags as to where things went wrong.. you can consider various options before you go through the loop again:
Do I iterate on one of the factors of the Minimum Viable Payload? (try a different positioning strategy, go 2 market strategy, or product revision?) Do I pivot to a different product hypothesis? Do I pivot to a different minimum viable segment?
In conclusion, I hope you find this framework useful in helping you diagnose what you should try out. Let me know what you think and if you’d add/subtract anything to it.
See below for a diagram of the Product / Market Fit Cycle:
by Carlos Eduardo Espinal @cee On Growth, Virality Loops, and Customer Acquisition
Everyone loves a personality test. Whether for fun, or to better asses our skills as part of choosing a career, we all love hearing about how others perceive us, how we function, and how we are likely to react in situations. We are all naturally narcissistic (up to a point) and it is at this point that Traity, a Seedcampcompany that specialises in helping its users figure out how they rank in a variety of psychometric test (think of them as a more thoroughly complete Myers-Briggs test), helps users identify their core attributes as ranked by people in their social graph.
For the purpose of simplicity when speaking of Traity’s technology, I’ll use the term ‘personality test’ loosely, however, what was confusing for the founders was that while ‘personality tests’ are generally well received and actually fun for many (as in magazines or online for example), Traity struggled quite a bit, in their early days, in converting people to use their service because their personality test, while far more accurate and useful than those you take online where you assess yourself, requires you to have had your friend assess you as part of their process.
Traity was having a classical conversion/acquisition problem. Traity’s CEO, Juan Cartagena, could funnel people to his website, but couldn’t get them to go through the sign up process and then get others to sign up (which he needs as part of his product). So he went on a mission to find out how to optimise this. Here the video of Juan sharing his story.
After this video came out, I recently had the chance to catch up with Juan and ask him if he could help me summarise how he worked his way through to where he is now. Firstly, he told me it all started with a chat with social games guru Blake Commagere (http://www.crunchbase.com/person/blake-commagere), who pointed him in the right direction…
Next, he identified the key metric he wanted to optimise around. In his words: “There is generally one key metric for every business that matters- optimise around that metric.”
He then decided to experiment with design as a key growth driver vs. the traditional MBA-type solutions which, until then, had not been working for him. For the record, Juan has an MBA from the Chicago Booth School of Management. One of the top MBA programs in the world, so for him to make a jump like this, really does mean a lot in terms of not adhering to ‘traditional-type’ thinking.
He then further committed to this path of experimentation by reading two books which greatly influenced his thinking on how to further evolve his customer acquisition process:
After having read both books, he went through each one of the key influence factors outlined in the book and scoured through his product to see how we could apply the concepts. Once identified, he then went about applying the appropriate design principles to yield the ultimate effect on the influence factors.
For your reference, the key influence factors highlighted in Caldini’s book on Influence include:
Before proceeding any further, I should state that in order to better apply these concepts, that you understand what your Minimum Viable Segment (MVS) is. Without understanding your MVS, any optimization of design or messaging will likely not be targeted enough to yield directionally measurable results. For a primer on an MVS, go to Northbridge Partner, Michael Skok‘s site here:http://www.mjskok.com/resource/gtm-segmentation
The design process Juan subsequently followed, included not just the obvious making of buttons, bigger, correctly placed, or prettier or red (one of the points he mentioned about colors and engagement) or choosing a different logo, but more importantly in coming up with the correct messaging to convey the influence factors he was trying to exploit. This is crucial. The messaging is just as important, if not more, than the more traditionally-experimented visual elements of design. Although not from the books that Juan mentioned, two good books to get you thinking about how messaging matters for positioning and differentiation are:
As far as Juan’s design focus, think about it this way, he moved away from just building a more explosive gunpowder to thinking more about how to package and propel it forward (otherwise all you have is explosive gunpowder that will explode in your face).
Although it seems obvious when you read this, Juan discovered that a key aspect of using both influence and design as part of evolving his process, was understanding that his costs of user acquisition would go down the more his viral acquisition would go up, and in order to scale this virality he would need to leverage the emotions of users to have a stronger reaction. However, I’d venture to say that many don’t consider this as part of their design process, Juan admits he didn’t at first.
Specifically, Juan saw how, via design, narcissism and voyeurism was used by sites like Facebook & LinkedIn to yield frequent use, fear of missing out by sites like Instagram, Twitter, and Groupon, and Inspiration by brands like Coca-Cola. He set out to understand how he could leverage these feelings as part of creating better copy on his site’s messaging to both yield better conversion but also more virality.
He then took things one step further by truly delving deeply into what virality is… and then nesting virality loops within his product that amplified his ‘K’ value (For a primer on Viral Marketing, check this Slideshare presentation from David Skok:http://www.slideshare.net/DavidSkok/the-science-behind-viral-marketing ) oh, and yes.. he’s Michael J Skok’s brother. Also from David Skok, an excel model you can use that might help you plan and predict this to investors: http://www.forentrepreneurs.com/lessons-learnt-viral-marketing/
Lastly, because without metrics you are just flying blind, Juan used Kissmetrics to analyse his efforts and truly understand whether his changes across the board were yielding his desired results. Build, Measure, Learn… Build, Measure, Learn.
In summary, if you have identified a real need within a market and built something awesome (gunpowder) but you just can’t seem to reach your customers, perhaps go through the journey Juan went through and assess whether perhaps the issue isn’t what your product does, but rather how you are presenting it to your users.
Additional Resources:
For a curated list of talks on what will get you on the right track in Customer Development – http://www.hackertalks.io/index/2
For a curated list of talks on UX – http://www.hackertalks.io/index/3
For a list of Growth Hackers – http://www.aginnt.com/the-growth-hacker-mafia#.UWvHXSv70qv
Growth Hackers Conference Lessons Learned – https://www.blossom.io/blog/
Cover via Amazon
Originally published on Venturebeat on April 3, 2013 3:44 PM by Carlos Eduardo Espinal @cee 7 reasons for entrepreneurs to avoid tranched investments
Investments, like the ocean, can come in waves, but that doesn’t mean they should.
A “tranched investment” is an investment that is split into one or more parts. In order for the company to receive the latter parts of a tranched investment, it usually has to achieve goals or objectives set as part of the conditions of investment. A typical example of a tranche is: the investors give you half the investment amount right now, and half the investment when your revenues reach ‘x’.
Generally speaking, the current thinking around tranches by most investors is that they are a good tool to motivate founders to reach a milestone or alternatively to reduce their exposure to risk. However, tranches are more damaging to the long term success of a company than investors may typically consider, particularly if milestones are not met or the company comes dangerously close to just meeting them.
Specifically, I think tranches can:
So, if you’re a founder, what do you say to an investor who’s hell-bent on implementing tranches in your term sheet? And, if you’re an investor, how do you reduce the risk of your investment so that you aren’t over allocated prior to the key inflection milestone being achieved?
My recommendation for both these questions is to get a dialog going to agree on one of the following three potential alternatives:
1. Reduce the amount of money and target a closer-term milestone for the startup to achieve. Yes, this implies that if the startups hits its milestone, it may command a higher valuation and the investor will not have been able to secure the economics of a tranched investment, but in exchange, the investor is getting a higher probability of overall success for their investment. Note: This should not constitute an opportunity for predatory investors to under-fund a company by picking too-early a milestone for founders to accomplish, as this not only hurts the company’s likelihood of achieving it, but also the likelihood of the company being able to secure follow-on capital.
2. If an investor really needs to have tranches, implement “binary” milestones that are simple and clear. What you want to avoid are tranches that have partial or subjective achievement, such as when a company comes pretty close to hitting its revenue figure or number of users. An example of an ideal binary milestone would be: You will get a sum of money unlocked equaling the salary of a new CFO when you hire that CFO. The target is clear (hire CFO), it is not ambiguous or ‘close enough’; you either hired the CFO or you didn’t, and then the amount of money is tied to that achievement.
3. If you can’t agree on either of the above, that implies either the company is overvalued for where it is, or the investor may be overly cautious; if the latter, then the founder might want to reconsider taking them on as investor (assuming he/she has a choice).
One more thought on why the carrot/stick theory behind tranches doesn’t work: In his book Drive, author Daniel H. Pink walks through classical motivation models and compares them to his observations on actual motivation. He makes a very compelling case for companies, managers, parents, and just about anyone to rethink their preconceived notions on motivation, particularly around old carrot vs. stick methods.
He says the old form of motivation fails because for three reasons. One, It doesn’t mesh with the way many new business models are organizing what we do — because we’re intrinsically motivated purpose maximizers. Secondly, It doesn’t comport with the way that 21st century economics thinks about what we do — because economists are finally realizing that we’re full-fledged human beings, not single-minded economic robots. Finally, it’s hard to reconcile with much of what we actually do at work — because for growing numbers of people, work is often creative, interesting, and self-directed rather than unrelentingly routine, boring, and other-directed.
This topic may yield contrasting views on the efficacy of tranches by investors, but I sit squarely on the side that tranches, as they are generally used, are more value dilutive than value accretive for all parties involved.
Read more & Comment at: http://venturebeat.com/2013/04/03/7-reasons-for-entrepreneurs-to-avoid-tranched-investments/
by Carlos Eduardo Espinal Twitter – @cee Blog – http://thedrawingboard.me
One question that I often get from founders is what ‘tier’ a prospective investor is. As in, what differentiates their prospective investor over another as ‘better’ or ‘worse’, relatively speaking, and on what basis.
Just to clarify, although there is no formal ‘ranking system’ for the tiers of investors, generally speaking, every investor sort of knows where they ‘rank’ relative to others or at least relative to the top investors. The best funds, generally known as ‘Tier 1 investors’ are the most in demand, and then, the tiering is largely subjective from that point onwards as to whether a fund is Tier 2, or Tier x, so there isn’t a huge benefit to spending too much time trying to actively find the ‘objective’ rank of an investor.
That said, what IS worth exploring is what differentiates the better ‘tier’ investors from the rest. Below are the seven attributes that I believe differentiate ‘the best from the rest’.
As you seek out potential investors, keep an eye out for these variables, the more of these your prospective investor has, the likely better off you will be as a founder.
1) Has a great network – the biggest value-add, in my opinion, that an investor can bring to the table, is their network. The larger their network, the more doors they can open for you. Nothing beats a direct intro to someone you need to meet.
2) Has a great brand-name – this helps with the network, but having an investor with a great brand name, either as an individual or fund, can help not only open doors indirectly (as in not requiring an introduction), but also to provide your startup with instant validation to potential customers, partners, and new investors.
3) Has sufficient levels of capital to support you – Although different investors have different strategies around this (eg. an Angel rarely can follow-on as much as an institutional fund), it is generally a good thing to have an investor who can invest in your company throughout the lifecycle of your company.
4) Has sector expertise – One way that investors can differentiate themselves as a top tier investor from the usual suspects is by having focused experience in your sector. For example, an investor could be a generalist Tier 2 fund (remember that this is subjective), but as an ecommerce investor they may be a Tier 1, great if you are a ecommerce company, but just ok if you’re a fintech company. This is because they will likely have a large network (see point 1 above) in their sector of expertise.
5) Has deal experience – You will go through a lot of unique and stressful situations during a fund raise. It really helps to have someone who has gone through the process before and can help smoothen things out between all parties involved if needed.
6) Isn’t burdensome – An excellent investor does not burden the founder during the investment process with unnecessary or unusual diligence requirements for the stage your company is in. For example, a company that is very early stage will likely not have much to be ‘diligenced’, if an investor is requiring you to have an accurate version of what will happen in your company 5 years from now and you started your company three months ago, question whether they truly think the information you will give them has any likelihood of being true (and whether you think they’d make a good investor for you).
7) (Lastly, and most importantly) Has a big vision – Good investors on your board will help you by working with you on best practices for company building, but great investors will help you by helping you set the right vision for your company. The better investors help you think big because they think big themselves. This means not only having an attitude of can-do vs can-not, but also having the experience on how to coach you through this type of thinking.
Now, keep several things in mind, however, after reviewing this list:
1) There are many new investment funds and or individual angels that come to the ecosystem and therefore may not have an established brand name, but have great networks and experience. Don’t dismiss them prematurely, however, do ask others that they’ve worked with what it’s like to work with them.
2) Although founders that have done well and gone on to join a fund can be awesome people to have on your board, however, investors don’t have to have been founders themselves to be great investors. Experience as investor, having done many deals and knowing how the best companies operate, can count for a lot, so look for a blend of all attributes in your investor and not just look for a founder-turned-investor that can empathetically relate to what you’re going through, but provides little beyond aged anecdotes about how they did things.
3) If you’re ever stuck between two potential investors, really really consider that the person that will be working with you on the board will help you define many things about your company over the coming years. Choose wisely and ask yourself who you would rather work with long term, you wouldn’t want too chose someone on a brand name alone, but causes you hair loss, heart burn, and emotional stress on a regular basis.
I hope this helps you in your quest to find your potential investor.
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