The ‘true value’ lies in investor knowledge
As the well-known phrase goes, cash is king. Even though cash is clearly fundamental to business, knowledge certainly is a powerful factor when it comes to elevating startups to the next level - as I have seen at Connected with several of the startups we work with.
Of course, having access to funds is of vital importance to getting a business off the ground but this can often lead to founders having a tunnel-vision approach towards securing investment, further impacted by the time constraints that come with starting and running a business.
Whilst investor knowledge is a far less tangible form of support than financial investment, it’s the key to transforming a great concept into a successful business.
The voyage from concept to sales
It’s no secret that the first few years are the hardest for small businesses. Ahead of them is a perilous journey – how they handle the transition from product development to actual sales will determine their likelihood of success. The size and difficulty of this task depends on the time it takes to get their product off the ground and start selling.
Cash investment certainly gets businesses out of the metaphorical ‘driveway’ but they must secure the right amount if they’re to reach their destination. Inevitably there will be a few bumps in the road, be it product development, staff turnover and ineffective marketing, all of which can cause huge setbacks to early-stage startups, stretching resources further and requiring even more investment to keep the business on track.
This first stage of a business is the most dangerous and risky period they will face. By bringing further business acumen into the company - including knowledge of product development, sales, marketing, connections with relevant customers - founders have the power to make this initial push a much easier and shorter process, requiring less cash investment, and so making the early-stage journey much more achievable.
Investment, investment, investment…
Another issue with sourcing only cash investment is that, on its own, it’s not sustainable. Founders can very quickly find themselves in an endless cycle of chasing investment, funding the next project, running out of money and chasing investment again.
Product development drags out as the founder spends so much time trying to find investment, and the focus shifts away from sales. Then, once the product is created, there isn’t enough of a push to sell, so founders continually try to source investment.
The issue here is, that despite money coming in, it’s not from a sustainable source. Only once a product starts selling, can businesses enter a more healthy cycle: sales, marketing and brand awareness, more sales, investing back into product development…and repeat.
How can a business enter a healthy cycle of sustainable growth as soon as possible and how can founders extract the value that comes from investor knowledge – not just their cash?
Looking beyond the numbers
Investors are best positioned provide a wealth of knowledge to businesses and helping them on their growth journey. If they’re angel investors, it’s likely that they’ve successfully built a business themselves and are now looking to grow other businesses, especially within their own industry. Passionate about business, and well-versed in the trials and tribulations of being a founder, angels will have a wealth of knowledge and experience around how to grow your business.
If they’ve an institutional investor, it is likely that they have taken a number of companies through the growth journey from startup to multi-million organisation. Generally sophisticated investors, they will have broad experience across various sectors and types of business investment.
For investors, it is clear that providing insights, guidance and support is something that they should be doing. By providing businesses with cash investment alone, they’re missing the opportunity to utilise their experience to enhance the growth and increase the profitability of the businesses in question. The benefit of cash only investment can hold back founders and minimise returns for investors.
There are three main assets investors can impart other than cash:
- Corporate connections
Investors will likely be able to put you in touch with potential customers, marketing teams, industry leaders and business advisors that they, or their portfolio of companies, may have used.
- Industry knowledge
They’re also most likely investing in your company specifically because they have experience in your particular industry. They will have valuable lessons to share with you including mistakes they may have made and the very best routes to market. Having this kind of industry-specific guidance can prove invaluable.
- Business acumen
It’s unlikely you launched a startup to do the ‘back-end’ jobs of sales, marketing, HR, logistics etc. The focus of your passion will be your ideas and your product and you will also undoubtedly be time poor. Investors can provide the business knowhow and bandwidth to allow you to zero in on your main responsibilities as a founder.
It’s not just investors that can provide the above too. Founders should harness as much support and advice as possible from other founders, advisors and non-executive directors to accelerate the growth of their business.
Conclusion
Founders who seek guidance, advice and expertise, in addition to financial investment themselves, benefit from unlocking the true value that investors can provide and accelerate business growth with the tools necessary to do so.
In today's global startup market, investors are looking to add value both in terms of equity and knowledge to maximise their return on investment, so obtaining the additional value that investors can bring holds the key to startup growth.
