When it's an easy decision to pass on startup funding

startup funding

I got an offer from the exact startup investor that I wanted to work with. But, I had to pass. Here's why, and what to look for in a startup investor.

Hello friends and welcome back to another edition of my newsletter, where I share growth strategies for busy founders.

I passed on my first-ever startup investor

I can remember being offered a seed round of funding for my first startup.

I was standing in the parking lot of the bank I was working at, talking to what was, at the time, my target investor. The one investor that I really wanted onboard.

Within just a few moments on the call, I could tell the investor was interested. By that time, I had pitched enough that I had my elevator pitch down cold. Even to this day, I can rattle off the one-liner we prepared for describing the business model. On top of that, we knew that we were the first to market with what we were doing and we had a lot of traction already. We had a live product, paying customers, and massive growth (I think at that point we had members in 23 countries).

After giving my pitch, I fielded a few additional questions from the investor. Which were mostly focused on where all the growth was coming from. She was shocked that it wasn’t social media. It was from a referral program we had instituted that my co-founder had gamified.

In less than ten minutes she had offered me a deal.

But, something didn’t feel right.

Her plans were to merge my startup with another in her portfolio that was struggling. She believed that our model and traction could help turn them around.

The offer got worse from there.

She wanted the other CEO to remain in charge. The CEO who was leading a failing startup.

So, I passed.

But, I didn’t pass strictly because I felt the offer was bad.

I passed because the offer exposed to me how the investor thought about her portfolio and the way she operated with her founders.

When you are raising capital it’s important to remember that fundraising is less about the money and more about finding investors that you match with.

I’ve always said that the right investor brings more than money to the table. They should provide advice, expertise in your space, connections to potential customers, connections to other investors, and more.

However, beyond those resources, they should come to the table as a partner. Some investors feel that investing in a company gives them the right to see the founders as their employees, rather than their partners in growing a business.

I talk to founders all the time who are desperate to raise a round. So, when any investor is willing to talk to them, let alone make an offer, they feel the pressure to bend to the investor's will.

Don’t. You’ll regret it.

Remember, investors are actively looking for deal flow. The syndicates I am part of are saying they don’t have enough good opportunities to look at.

So, don’t fall for believing if you pass on an investor that you won’t find someone else who is interested in your startup.

Heck, they could even be a better fit.

What I’m consuming

I’m continuing to work through my friend, Mark Schaefer’s, book Known.

This book will be the first set of book notes on my upcoming new Book Notes page. Be sure to bookmark it for future book reviews and notes.

I also spent today learning more at FIDO (Fast Identity Online) authentication. I despise password management, so having another option for user authentication is interesting to me.

If you’ve found this information helpful, I hope you’ll do two things for me.

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