If You Want to Raise Venture Capital These are Two Often Overlooked Factors That Investors Want to See
November 12, 2019
If you are an entrepreneur, there is no better place to sharpen your pitch, gain valuable connections and learn from veteran business leaders and investors than the annual Entrepreneur Expo hosted by the Maryland Technology Development Corporation’s (TEDCO). In it’s 9th year the Entrepreneur Expo attracted approximately 900 attendees from across the Biohealth Capital Region (BHCR) and beyond who came together to share ideas, collaborate and network.
The energy, enthusiasm, and spirit of camaraderie among attendees, presenters, keynotes, and panelists were undeniable. Whether it was a postdoctoral student seeking employment, a startup on the hunt for funding or industry thought leaders and well-established c-suite executives sharing their experiences, it was abundantly clear that the entire ecosystem is moving forward as one.
The theme of togetherness was front and center at the Expo, cascading through the day’s sessions and into an unexpected venue: A panel about venture capital funding called “Series A to Exit.” Moderated by Elizabeth Good Mazhari of Transition Health Ventures, the panel included Charles Andres of Wilson Sonsini Goodrich & Rosati, Kapila Ratnam of Newspring Capital and Claire Broido Johnson of the University System of Maryland Momentum Fund.
The “Series A to Exit” panel offered attendees expert tips and best practices for fundraising success, as well as stories about mistakes startups, make when pursuing early funding rounds. The panelists were open and transparent, quickly breaking down any perceived barriers between the panelists and audience with honest and at times stark observations. From the get-go, it was clear the panelist were there to help, understanding that more informed, better-prepared entrepreneurs are mutually beneficial to their own investment efforts and the region as a whole.
The panel recognized that it’s natural for startups and emerging companies seeking funding to focus heavily on its IP, networking and building a team with the right credentials and skills. All of these aspects are important when marketing a company to potential investors. However, the panelists identified that there are two elements that are often overlooked by companies and investors alike: Emotional intelligence and coachability.
As panelist Charles Andres put it, “Even though we’re talking about objective things here, there is still a large element of human chemistry involved in this process…This chemistry is intangible but it’s very real, it’s as real as anything else.”
The emotional intelligence, self-awareness, and coachability of CEOs and leadership teams came up time and again. The investor panelists emphasized that these factors were critical to establishing good teamwork and collaboration among investors, board members, company founders, and leadership teams.
“I think one of the biggest things an investor can look at is the emotional intelligence of the founders…This is not something you might typically hear. Is this founder and management team coachable? Are they willing to take advice and do something with it? Whether you like it or not as an investor you become part of the team and you want that team to be successful,” stated Claire Johnson of the UMD Venture Fund.
“In many cases, the CEO walks a very fine line…To be a successful CEO you have to, on the one hand, have this vision and adhere to this vision like a zealot. You are going to drive this thing forward no matter what stands in your way. On the other hand…you need to be coachable. You need to be able to step back and when someone recommends a course correction, you need to thoughtfully consider this correction and then go back to that single-minded focus,” added Andres.
Kapila Ratnam of Newspring Capital shared that she looks at roughly 1,000 pitches and invests in only 3 or 4 companies each year. In addition to checking more objective, measurable due diligence boxes before investing, team, trustworthiness, and communication also play essential roles in Newspring Capital’s go, no-go decision.
“Diligence of the team is very important. Looking closely at management is the key. It’s people who are going to deliver…Is this a CEO who can take it from concept to a $100M company? Are we going to have to shore up the team in the future with a COO or CFO?” stated Kapila.
She added that if there are issues, she wants to “…know about them before I walk into the boardroom,” and that only happens when the investor, founder and leadership team are in-sync, operating as a collaborative team.
Startups and emerging companies also need to determine the emotional intelligence and value system of their potential investors. Diligence goes both ways when it comes to exploring if a partnership is the right fit.
“When we do diligence on an investor, we want to know what they’re bringing to the table outside of capital. There’s a lot of stupid capital out there. And the question is I can go get capital anywhere else but what are you going to do for my company? What are you going to do for me? If you are going to be on my board and are you going to be a pain or are you going to help me out?” added Kapila.
“If you start interacting with an investor and you get the impression that the chemistry is anything less than neutral maybe it’s a bad idea. Neutral or better is something you can build on. If every interaction is like a couple of porcupines having dinner together, you’re going to have a very hard time building trust,” stated Anders.
“Clear, concise and accurate communication is critical…If you can clearly convey to an investor what potential issues exist and how you are addressing these issues…if you are not ‘hiding the ball’…and you being accurate in your assessments this carries over to everything. It’s a good habit to get into,” added Anders.
Investing time to wrestle with the intangible, subjective characteristics of a founder, a leadership team and an investor helps mitigates risk for all parties involved. It also increases the likelihood of a fruitful partnership for all stakeholders.
Amazing science, great data, an impressive CAP sheet and a team stuffed with the greatest minds in the field are attractive to investors and fantastic selling points for a company seeking funding.
But in the end, people on both sides of the partnership need to be able to work together to make great things happen. It sounds simple and obvious, but the expert panelists came back to emotional intelligence and coachability time and again, clearly signaling that this aspect of the investor-company relationship is sometimes underappreciated and often overlooked.
“You’re going to go into a marriage with your investors. You better be sure that you can live with them,” stated Moderator Elizabeth Mazhari, wrapping up an intriguing, candid and surprising panel on venture capital thought leadership.