Asking the right questions to your potential capital partners makes all the difference when it comes to a successful fundraise and smooth scaling process. In this part of our Finding the Right Capital Partner series, we are exploring how to determine if a capital partner will be a good fit for your business based on their industry experience.
Why is this important?
Scaling your business is a difficult journey, and when looking for outside financial support, having someone that understands the intricacies of your industry can elevate your growth strategy and help you avoid making mistakes that are common to your sector.
Another key benefit is their understanding of the competitive landscape and your company’s key differentiation. Each industry has nuances that are critical to understand – a one size fits all approach does not usually work. Having partners who have either invested in or have run a company in your industry is enormously helpful when it comes to navigating road bumps and steering towards a successful outcome for everyone. It can also help you better define your niche and help you stand out among your competitors.
In addition, experience with successful exits in your industry will allow the partner to help your company prepare itself for the next phase of growth. They can push you in the right direction, and act as a thought partner across product, growth, GTM, HR, and more. In addition, they can help with ensuring larger strategic acquirers or other venture capital groups will find the business attractive and will be able to advise on which groups might make better partners for the next leg of the journey.
Finding the right background
The easiest way to check on a potential financial partner’s industry experiences is by heading to their website to look at their active and exited portfolio companies. Their investment history will tell you what industries they have experience in. In addition, take a look at their blog and/or social channels, if they have them. Partners and team members will often share their expertise on subject matter key to your industry, which gives you a deeper idea of what they focus on in their investments. CEO reference calls are another great way to get to know how a financial partner operates in their long-term investments.
Another way to gain insight into whether a VC firm has experience in your industry is to investigate partner backgrounds through their LinkedIn profiles and their website profiles. The partner leading your deal will often receive a board seat to help steer the company, so having someone hands-on with industry experience can help your board stay focused on your specific goals. They will be able to keep a pulse on the specific and timely struggles your company faces, including fundraising barriers and the possible exit environment. They can also help you find talent through their pre-existing network. Talent that has industry experience can add enormous value to executive positions, as they will have experience that guides your scale more seamlessly.
If a group has little to no experience in your industry, make sure to address it in your conversations. Is it new vertical they want to expand into? If so, what do they find attractive about the sector? It is not necessarily a deal breaker that they do not have specific experience if they have familiarity investing in similar businesses in parallel industries and are aware of the key industry drivers. As long as they are able to approach scaling through a lens that accurately captures your industry positioning, metrics, organic growth, and/or acquisitions, they could be able to help you effectively.
Ensuring alignment and understanding will help you soothe the inevitable growing pains that come with scaling your business to the next level.
Head back to the series overview here.