Operating Experience: Fundraising Part 3
How operating backgrounds can help investors be better partners for your business.
Fail fast is a start-up mantra. When you are a founder, especially of an early-stage startup, you have a finite amount of time to complete a seemingly endless to-do list. However, this mindset can prove to be detrimental when your company transitions to the next phase of growth.
The transition between scrappy startup and professionalized business can be a difficult one. Founders report feeling increasingly isolated as they lead their teams through more intricate problems that accompany rapid growth.
It is usually around this time that founders are considering fundraising growth rounds. Venture capitalists can cover the financial gaps of growth and are also able to become problem-solving partners that can prove to be valuable members of your team. In this series, we have discussed the importance of finding an investor whose criteria aligns with your company’s industry and operations. Now, we are going to explore the role operating experience can play in your relationship with your investors.
WHY IS OPERATING EXPERIENCE IMPORTANT?
Working with venture capitalists who have operated similar businesses to yours means that your financial partner has been in your shoes. They understand what it takes to start and run a business, and that the path to growth is not always, if ever, a smooth one. Here are the four most mentioned reasons having former operators as capital partners can prove beneficial.
Learn from their mistakes
As Eleanor Roosevelt famously said: “Learn from the mistakes of others. You can’t live long enough to make them all yourself.” Finding a capital partner with operating experience opens the gate to connection on a deeper level. They too have been alone while making difficult decisions that impact the livelihoods of their teams and the trajectory of their business. A true camaraderie forms as you work with former operators to identify the scaling tactics that are optimal for your organization. Instead of failing fast to find the next best steps, you will have a sounding board and guidance into what works and where pitfalls lie. Having the support of people who have faced both the micro and macro challenges you are experiencing or will experience makes the growing pains less painful.
Deep appreciation for people over spreadsheets
Former founders have a deep understanding that growing your business is not just the numbers – it is the people. Culture comes from the top down – starting with the relationship you have with your capital partner – and affects the day-to-day performance of the people that build your company. A mutual appreciation for the challenge and importance of hiring will help you build the right team to support sustainable and successful growth.
Face roadblocks together
Every entrepreneur understands that the best-laid plans can flounder. Instead of worrying about how roadblocks look to investors, wouldn’t it be nice to turn to trusted partners for advice on the best next steps forward? It is invaluable to surround yourself with people who can help problem-solve and provide a wider perspective both as a former operator with successes and failures and across other portfolio companies.
In addition, former operators understand the struggle that is the entrepreneurial climb. They often are more forgiving of roadblocks, seeing beyond to the bigger picture. Since they also have sat where you have sat, they can help you reframe your goals and build the infrastructure to support growth and limit the pending obstacles to it.
Know the right level of “hands-on”
Some investors have a “playbook” and will run it across all their investments regardless of management’s experience. Investors with former operating experience usually have a more tailored approach. They give entrepreneurs the autonomy they need to run their businesses without someone looking over their shoulder and second-guessing their decision-making. Instead, partners with operating experience can manage the relationship with the appropriate level of touch and meet management teams where they are. It’s not a playbook approach but an approach tailored to each organization.
And there you have it – selecting a capital partner with operating experience gives you access not only to the financial backing you need to scale, but to the wealth of knowledge only founders understand. Explore how potential investment firms work with their management teams on a granular level, and don’t be afraid to ask “what if things go wrong” – this is a partnership that will last for years and there will likely be hard times.
Head back to the series overview here.