Dublin-based startup NewsWhip tracks the social spread of all content online, and provides data to customers including BuzzFeed, BBC and the Guardian. In the NGWD, CEO and Co-founder Paul Quigley shares some tips on growing an internationally focused SaaS business from Dublin.
If you head out to fundraise today, you’ll hopefully start meeting potential investors. And from our experience and conversations I’ve had with other founders in Ireland, I would loosely divide them into three categories: non-investors, bad investors and good investors.
Often, a good or bad investor relationship is created by the founder. Treat the relationship as a long-term marriage, with all the patience and mutual understanding one of those needs.
When you’re new to startup land and you have a reasonably hot product, you will meet many people who describe themselves as investors. They will meet you for coffees to ask you about your total addressable market. They will challenge your revenue assumptions. They’ll ask questions that will test your patience, as they may not know your market or technology. Stay patient and explain. Much of this is good and necessary, and you’ll get many good questions that will hopefully force you to change your thinking.
But once a potential investor starts to engage or take up a good deal of time, do a little homework before you get too excited. Quite often, they might not be a likely investment prospect at all.
You see, a semi-dirty little secret is that many investors on the scene rarely invest. They participate in the scene as angels, fund managers, or visible personalities, but they rarely actually put cash into startups.
Fortunately, thanks to Crunchbase, Google, and other startup founders, you can with a little research get a sense of who is and isn’t active. Most funding deals are announced – usually a few months after they actually happened, to coincide with a product release or a fancy new customer for the startup. Investors are named. A diligent founder can see which funds and angels are actively investing, and who is there only for practice. We were fortunate to come upon one of the most active funds in Ireland (perhaps the most active) back in 2013. These are people who are in the business of investing in businesses rather than talking about it.
I’ve come up with a tongue-in-cheek metric founders might want to consider: the P:I (Panel:Investment) ratio, which you can apply to any investor you meet. The P:I ratio is the ratio of the number of startup panels (P) an investor participates in to the number of investments (I) that they make. For example, imagine an investor appearing regularly on judging panels, expert panels, and investment forums – say 20 events per year. In that year, they make two investments. They have a P:I ratio of 10.
An investor with a P:I of 10 will appear important to a founder new to the scene, as they are feted at so many events and panels. But in fact, they rarely invest. If they’re a VC, maybe their fund is largely spent. If they’re an angel, maybe they just like the social aspects of being an investor (prestige, social capital). Maybe they are intellectually curious about startups, but prefer to learn than to invest. In any event, don’t worry if they don’t invest in you, and keep your focus on the reasonably active funds and investors. Use the non-investors for practice pitches and don’t get disappointed if they give you a California No – “We really like it but it’s not the right time.” You’ll make many pitches before you get financed.
Bad Investors (AKA The Term Sheet Of Horror)
Early in NewsWhip’s evolution, my co-founder Andrew and I were offered investment by a fund. We were interested, until we got the terms.
First, the proposed valuation of NewsWhip was to be a fraction of what other investors were then considering. Then, there was the other 10 pages of the non-negotiable term sheet. The investors effectively wanted complete control of the company’s future: all future investment would be at their discretion, IP ownership, the list went on and on. We looked at the term sheet, looked at each other, and said no.
All investment is not created equal. Caveat Entrepreneur.
Good Investors: Interested in the Business
A good investor will be interested in your customers, what feedback they’re providing, and your strategy for going deeper with them (more product for them) and widening your market (expanding into adjacent markets).
Good investors will often insist on traction, especially for a SaaS business. This is unavoidable except at the most early stage. Traction is the ultimate signal that all the bits and pieces you are describing can actually come together in a form that people will pay for, or at least spend time with.
Insistence on traction is frustrating for early stage businesses. How can you get people to come if you can’t afford to build it? This is where your storytelling skills and Big Idea are most put to the test.
Even good investors will often present particular traits that can be challenging for founders. One I have heard from a few founders is Investor Obsessions.
Investor Obsessions occur when an investor reads about a trend and starts pushing the founders about it, even if its not related to their business. Imagine your investor hear a lot about virtual reality or payment security and start chasing you to put it into your product roadmap even if it has little or nothing to do with your core business.
That said, don’t get too cocky that you know best. Investors will often be able to stand back from your business in a way that is hard for a founder, so be sure to genuinely examine any product suggestions or big trends they raise.
The reality there’s very few black and white ‘good’ or ‘bad’ investors. Everyone will correct your course wisely at one point, and everyone will probably also send you barking up the wrong tree. Your job is to manage this reality, work with your position, and grow your business while keeping everyone on board.
Investors don’t know your technology and customers as well as you do, so their advice on those fronts might be wrong. But on the other hand, they’ve been around the block many more times than you, and have seen all the mistakes you’re likely making play out before. They would not be in the game if they did not have good business judgment, and they have the advantage of a different perspective.
So what can we do? Aside from managing the relationships, I suggest you keep everyone’s eyes on the prize. Once you’re aligned, you’ll be fine with the reality of regular old human investors who get it right at least most of the time. That’s all you’re ever going to get anyway.
To be continued…