In startups, the first thing you encounter is the team, its openness and willingness to cooperate. No matter how innovative and technologically advanced a startup’s product/service is, it can be difficult to work with a team. By the time an angel investor or venture capital fund finally decides to enter the round, the team is ready to provide any information (which they can share) that can somehow “turn the tide” in their favor. We are talking here about metrics, PL, Cash Flow and Balance Sheet for several reporting periods, as well as answers to questions that best show the vision of the startup’s development for the next few years. And at this stage, before the final decision to provide investment support is made, some teams begin to have problems with compliance with such an important and valuable component for investors – professional ethics, which, as a litmus test, best reflects the team’s readiness to “play the long game.”
Negative cases of communication from the teams that Angel One had to face during the work process were diverse, and we will likely meet similar cases again. However, it is useful to share some of the most notable ones:
- Warning that the team will not be able to join the call with the Fund’s Investment Committee only several hours before it begins.
- Telling investors or representatives of the Fund that the requested format of reports is too complex, and that other investors are fine with the format sent by the team.
- Deliberately providing irrelevant data on indicators (this becomes evident very quickly).
- Considering it normal to have a single joint call with investors once a year, justifying it by saying the team is more comfortable this way.
- Connecting to joint meetings with investors from obscure locations that do not allow for clear visibility and audibility of the team’s representative.
Based on this experience, here are our tips for startups:
- Never change the terms of the deal, especially the valuation figure of the startup for one or several investors, after others have already entered the round. Everyone communicates with each other, and this information will be revealed much faster than you can imagine.
- Communicate effectively with investors, regardless of the size of their check, whether it’s $50K or $5M.
- Try to provide timely and complete updates. In case of delays or changes, be sure to give advance notice. A short update that takes a few minutes will tell a lot more about you than updates delayed by three weeks.
- Be honest and share the team’s pain points or the threats you see for the startup with investors.
- Don’t be afraid to ask for help if you realize that you need an outside opinion, mentorship, contacts, or even additional financing. This will save you the most valuable resource – time, and will demonstrate to investors your attitude and passion for the business.
- Don’t view the investor solely as a source of money. Listen to their advice and the main points they emphasize. Professional ethics is, first and foremost, about building long-term relationships with investors. This applies not only to the period during which you are the founder of a startup but also in a broader, more global sense that each person defines for themselves. This does not always mean that you should follow them blindly, but it definitely makes sense to analyze their insights.
- If you realize that the conditions for a planned joint call with investors are not ideal (e.g., lack of internet connection, or being on a boat – yes, we’ve had such cases too:)), ask to reschedule the call. Don’t waste your time or the investors’ time.
Professional ethics is, first and foremost, about building long-term relationships with investors, and here we mean not only in terms of the time you are the founders of a startup, but in a larger, more global sense that everyone defines for themselves. The best indicator of a well-built relationship with investors is when they participate in ROUND after ROUND raised by the team. This shows not only that you have an incredible product or service but also that you are moving in the right direction and building quality communication and relationships with the investor.
By Valeriіa Fadieienko, Senior Business Analyst at Angel One Fund
