There is still a large gap in the knowledge available on how to invest and enter the space. This is despite of all the attention and hype startups are garnering around the world.
We hear a lot about “dumb money” and to avoid it like the plague, but is that it? As a former educator, here are a handful of tips for new investors from VC Unlocked to make your money smarter.
1. Understand the market/ecosystem you are investing in
Copying and pasting a playbook from one place to another will not get you the startup you hope for. It’s important to know that building up the key components are what matters. Do smart founders in early and later stage capital exist in your market? What about legal and other services and exit opportunities? If not, how will you as an investor traverse those voids?
2. Educate yourself and peers on good etiquette and best practices
It is good if you can manage to generate your own deal flow and fund your companies. Find yourself working alongside the rest of the startup community. It is in your best interest to play well with others. This applies on how you manage your relationship with fellow investors and entrepreneurs.
Good behavior are as follows:
- Saying “No” in a quick and kind way to founders that do not fall within your investment thesis.
- Having a discussion with your LPs about recycling management fees.
- Understanding which terms are investor vs. founder friendly.
Your responsibilities as an investor will include:
- Knowing what you are buying
- How to navigate and negotiate terms
- What part you play in being a constructive board member beyond writing a check
The good news is, there are many thought leaders and content around these topics that you can find online. Even better news is my colleague will be sharing a post devoted to the best ones!
3. Know your value proposition as an investor
“Why you?” is a question investors are often heard asking founders. But investors must ask this to themselves both for fundraising as well as deal flow. During one of the sessions, David Hornik of August Capital said, “If you don’t have deal flow, you don’t have anything.” Constance Freedman of Moderne Ventures pushed for differentiating yourself from other investors.
Investors should be able to articulate how their assets power their investment criteria. This applies to your industry expertise, personal network, or unparalleled access.
Jeff Clavier of SoftTech VC encouraged everyone to have “a clear schtick”. It is because at the end of the day smart founders will optimize for investor-market fit.
4. Be transparent with others, honest with yourself
This tip will go a long way, allowing you to attract the best relationships. Be efficient when using your time, and building your brand.
“Be clear about your investment filters and make sure they are known by founders, investors, everyone.” – Dave McClure
Dave McClure encouraged clarity of investment filters. He also expressed the importance of informing the founders and investors. This will help you avoid pitfalls of herd mentality. This will also help you avoid falling in love with the problem the company is solving.
It also helps for you not to waste meetings with founders you would never back and invest.
Mary Grove of Google for Entrepreneurs acknowledged that diversity fosters innovation. She also pushes investors to ask themselves with this question: “What are you doing to brand yourself or understanding of your own biases?”
Jason Calacanis of Inside.com and LAUNCH also reminded us of an important matter. He stressed the importance of always giving back to founders with something constructive. This is regardless of his investment decision.
For each meeting, Jason shared that he takes time to respond to the founder(s). He gives feedback on what was positive and candid concerns around potential challenges.
This is not an exhaustive list of how to be a more valuable investor. Rather, it’s a start to what is a long journey ahead should you choose to become one.