At MA2016 last week, Clarence Leong, CEO of EasyParcel; Tan Ban Eu, co-founder of Offpeak and Adam Lindemann, CEO & co-founder of Mind Fund Group Ltd gave their opinion on balancing the startup-investor relationship in their Fireside Chat called ‘Chasing Early Stage Capital: How to WOW Angels and PLEASE VCs’.
Why Need The Funds To Begin With?
Before we delve into the ways of how a relationship between investors and startups should go, first you should be asking yourself the purpose of even approaching ventures in the beginning.
“To beat our competition, we needed to grow very fast. You need to scale and capture the market quickly, which is why I believe raising capital is important if your venture really needs it,” said Clarence when sharing his own experience approaching investors for EasyParcel.
He also mentioned that as an entrepreneur, you want to validate your ideas. You want to test if people are willing to pay for the problem you are solving and how much they are willing to pay you for that.
Ban Eu agreed that using capital for the first round of funding should be focused on growth, which is why Angels and Venture Capitals (VC) are deemed so important for a tech-based startup.
“We wanted the first round of funding to go into growth. Our investors agreed on this as well so that’s why we got that funding, which is what you should be aiming for when looking for investors,” said Ban Eu.
The Dating Phase
One thing all the panelists could agree on was how the process of finding an investor is almost the same as finding your life partner.
Clarence went on to say that just like when it comes to dating with hopes for a long-term relationship, people don’t just choose a random person. Profiling is essentially needed beforehand because this helps to see who fits your criteria and it is essentially a two-way thing.
“You have to remember that when VCs are looking at you, you actually have the choice of looking at them too. So when you do your profiling, you know what kind of company this VC or these Angels are looking for,” said Clarence.
He also expounded that when choosing a VC or Angel, money is not the only factor. It’s more about the strategic partnership, which again can be compared to when you’re dating. If someone were to pick a life partner, they don’t simply marry him or her based on one characteristic. Marriage is seen as partnering up with someone as a whole, not picking out the factors you like.
Ban Eu echoed his sentiments by saying it’s exactly like marriage and the process is similar. He says that just as when someone dating a person, you find that if they want you to change something it sometimes results in a break up.
“So when you go out and meet your investors, every investor has some sort of direction on how they want to invest in the company. So you don’t have to fit yourself according to the investor. If you’re trying to impress by providing something you don’t have, you’re doing what people essentially do on a first date,” shared Ban Eu.
He reminded the audience that they needed to have a mindset that they’re going to be dating this person for a very long time. So the investor they’re going to meet and get ‘married to’ must be able to accept them for who they are.
“Keep in mind, you should find investors that will share in your visions and beliefs. Don’t try to change yourself for who you meet but try to find somebody who fits you for who you are.”
The Rules Of Choosing The Right Partner
So how do people know how to choose the right partner?
According to Adam, that startups need to always be careful when choosing an investor because you can fire employees but you can’t fire your investors. If you’ve chosen the wrong investor, you’d probably want to fire them.
“As an entrepreneur and a VC, I’ve had experiences with investors that have not been healthy so I would suggest that just as you want to be careful of who your co-founders and employees are, be very diligent with investors. Ask everybody who they’ve invested with about their experience.
Nice is not exactly what you want but good is. You want to be with people who can truly add value and who help you grow and achieve your potential.
To a certain extent, it’s unavoidable when people are pitching to investors that they go through this dating process. But there comes a point when I say no more pitching, now we’re in the same boat. It has to be very quick that the pitching phase is finished and that the founders realise that the investors are your partners,” shared Adam.
Once a startup has a fantastic team and a clear direction, venture investors and Angels will be swarming around with funds in hand to be given. Adam stated that as founders, you are more important than a venture investor if you have what it takes to build something.
“Don’t let venture investors think that they’re the guys making companies, entrepreneurs make companies. Good investors are good not only because they bring money, they’re good because they’ve seen a few things and they can help you. They’re just a partner, something to help you to where you want to go. So make sure to choose the best one.”
Malaysian Global Innovation and Creativity Centre (MaGIC) aims to build a Sustainable Entrepreneurship Ecosystem by catalysing creativity & innovation for long term nation impact. For its third installment, MaGIC Academy (#MA2016) gathered serial entrepreneurs, founders, philanthropists, investors, corporate leaders and startup enthusiasts from across the globe. You can follow MaGIC on Instagram and Twitter for more information: @magic_cyberjaya
Feature Image compiled from Clarence Leong Facebook, Offpeak.my Facebook and form.hktdc.com.