The Ideal Investor Group Post Seed Raise

Fundraising is often called ‘The Dance’, a nuanced and potentially lengthy process that can frustrate founders. Often times there is one sole objective: raise as much capital as possible in a short period of time. And while I won’t argue that time is of the essence — founders need to be focused on building their businesses — this short-sighted approach negates to account for the source of capital. And as Hunter Walk recently tweeted, “Capital is a commodity. Capital sources less so.” This was in a thread in which he started “Almost every startup cap table has, in hindsight, 33–50% investors who delivered minimal value beyond capital.” That may be surprising to many, especially when a quick perusal of VC websites proclaim them all to be ‘value add.’

What’s immediately clear to most with experience is that not all investors are actually helpful. Now that can come in different forms:

  1. silent, but don’t get in founders way
  2. well-intentioned, but don’t really have the capability to significantly move the needle, and
  3. the pain-in-the-ass who just cause problems.

Beyond the non-helpful, it’s also important to note that even helpful firms can do so in a variety of ways. The secret sauce is putting together the right combination where the whole is greater than the sum of the individual parts. This isn’t so different from putting together a sports team — a basketball team with 5 great scorers, but no passers, rebounders, defenders, etc, has no chance against a synergistic well-rounded team.
At Corigin Ventures, we focus on implementing the Repeatable Playbook of helping Seed Stage companies grow their businesses and putting them in the best position to raise a Series A. Fundraising is a significant component of that, even in the initial Seed Round we are participating in. As we aim to lead rounds, we then work with founders to optimize the rest of the roundtable (cap table), focusing on the best mix to grow the business, and raise the next round. We’ve received great feedback on this structure, so figured we’d share it with all who could benefit.

Note: The dollar amounts are for a seed-stage financing of approximately $2M, but the concepts are equally applicable to different sizes, and to both debt/equity.

Singular Lead Investor ($750k-$1.25M+)
They’ll negotiate/set the terms, and be the key domino in your fundraising. After that, they’re your partner, and will go to battle with you in the trenches. Ideally, they are generalists in that they can help across the board: governance, board work, strategy, recruiting, CEO development, fundraising, etc. By way of their check size, they will have significant skin the in the game, so they should always be reliable. You’ll often have access to multiple team members. While many firms can set terms and play the role, fewer have the capacity to fill this role in the way most helpful to founders.

Secondary Lead or Co-Leads ($250k-$500k)
Not too different form the Lead, just at a smaller scale. They won’t be on the Board, or involved with the day-to-day, but they should be reliable. It’s less important for them to be a generalist (because you have the Lead), and can actually be helpful for them to be more specialized, to be ‘great at one thing’. For example, a firm with expertise with your specific industry or business model.

Strategic and/or Industry Expert ($100-$250k)
Someone who knows the industry inside and out, and can be relied upon (only) for the difficult questions or for high-level connections. When Corigin Ventures was just getting started, and didn’t yet have the experience to be the best Lead, we often played this role as Real Estate Industry Expert, unlocking our rolodex and providing sector-specific insight. Funds, angels, other entrepreneurs, and corporates can all fit the mold.

Potential Series A Lead ($100k)
Anytime your fundraising, it’s imperative to build a relationship over time. No better way than to have one or two firms who can potentially lead your next round get to know you and your company from the inside. While some may argue there is potential negative signaling risk if that firm chooses not to invest, to me the benefits far outweigh the risks. They’ll often be much clearer with you than an outside firm around what milestones they are looking for you to hit and may even deliver that term sheet before you go out to the market, saving valuable time and frustration.

Angels, Users, and Brand Advocates
While you don’t want too many lines on your cap table, it never hurts to have a few small checks in there that will deliver outsized ROI to you by spreading the word to everyone they know. They can also give unique product insights.
Misc. Pointers
· Above all else, bring on partners that you respect and you’ll enjoy working with for years.
· Don’t just take investors’ word for it that they’ll ‘add value’ — do your diligence. Talk to other founders and investors.
· Set expectations (both ways), BEFORE taking the money.
· Even better if your investors know each other and have worked together before. Use your lead investor to help ‘set the rest of the table’.
· An ideal partner is not a yes-man. They push and challenge, respectfully.

roundtableI’d love to hear your ‘cap table stories’, positive and negative. Ideally from both investor and founder perspectives.

Aug, 18, 2017

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