Photo: Boonsri Dickinson, Business Insider
Ryan Howard, founder of Practice Fusion, compares picking an investor to dating.”I think an investor should be looked at as any other partner in your life,” Howard said. It’s OK to take your time and develop a relationship with them.
You wouldn’t decide to get married with someone after a few hours of meeting them, so why would you sign a term sheet after a meeting with eager investors?
Howard broke down what to expect from an investor and how to tell if you’ve found a good one:
- It all starts with an introduction: “Make sure who you are meeting solid individuals and that they have good referrals to those people. It’s really helpful. Spend time with them and build trust. Build rapport. They must show that they can deliver value.”
- Trust is most important: “Make sure you’re philosophically aligned. One of our investors is the Founders Fund, so Peter Thiel, Brian Singerman, and Bruce Gibney, all are very founder centric and aligned with the vision we have. It’s a long-term investment.”
- A lot of investor relationships are flawed: “You get introduced to a venture capitalist and you drive down to Palo Alto to meet with the associate. They drill you. You don’t get to know them. A week later you meet with a partner and they get to know you. Same process. If you get in front of the partner meeting, they may give you a term sheet. We had it happen to us where we spent 3 to 4 hours with a venture capitalist, we were given a term sheet at that time. There’s no way in 3 to 4 hours, you can get married to someone. That’s really what this is.”
- Quick to get hitched, but can’t get divorced: “I think it’s more serious and more permanent than a marriage. It’s like going to Las Vegas and getting married without the ability to divorce. After a few hours of courtship, they come on your board and have some control, and in some cases, have significant control of your company. There’s no way of getting them off.”
- Sucks to be fired from the company you started: “A great board will add some value to an organisation, but a terrible board will wreak havoc and cause a lot of dysfunction. I think the person it impacts most is the founder who is managing them. What it results in is the founder being ejected from the company, which is very problematic and troubling — to get fired from an organisation that you started in the first place.”
- Find investors that like you and the company: “Find an investor who believes in you just as much as they believe in the company. Many investors will go ‘I like the company a lot, but if we have to, we can replace this founder and CEO’. The best companies… Microsoft, Sun, Oracle, Dell, Apple, have founder-driven organisations and they are the most valuable companies as well. Just because it happens doesn’t mean it’s right.”