Category Archives: Startups

Successful startups say “no”

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“The difference between successful people and very successful people is that very successful people say “no” to almost everything.” – Warren Buffett

We’ve been spending the past few weeks at Homebrew helping several of our portfolio companies work through their planning for 2015.  It’s no surprise that during these conversations incredible ideas for new products and features, partnerships, revenue streams, technologies, etc., emerge.  So we and our founders all remind ourselves about the value of doing just one thing (or a very small number of things) exceptionally well.

Often times it’s easier for companies to choose to do lots of different things.  New initiatives are fun and energizing and get lots of attention while the effort required be truly exceptional at one thing can be an exhausting grind.  But being adequate at lots of things almost always comes at the expense of being excellent at the most important thing.  Great companies are born of focused excellence.  Google was the best at search before it expanded into new product areas and markets.  Facebook was a powerful social network before venturing into mobile communications and virtual reality.  Narrowing from lots of good ideas to just the most critical ones is the lifeblood of a successful company.  We constantly remind our teams that startups rarely die from lack of ambition, only from a lack of focus.  And we insist that there’s incredible power in saying “No” to the things that distract them from being best in the world at whatever they are doing.

So what are examples of  things that startups should be saying “No” to so they can focus on what really matters?

  • Settling for the good enough hire: It’s tempting to fill the hole on the team that seems like the obstacle to progress.  But hiring people with enough aptitude but the wrong attitude is guaranteed to impede and even reverse progress in the long run.  These kinds of early hiring mistakes can cripple a company.
  • Building new products or more features: There’s that one customer that is willing to pay a lot for just one new feature.  Or if you just add this small feature that will solve your user growth problem.  Or you’ve got early customers that love your product so you want to give them more to love before growing the customer base.  Do any of these help you deliver the simplest offering for the core use case you’ve identified?  Are you sure that you’re not iterating toward a local maximum versus placing a bet that might unearth a global maximum?
  • Short term revenue: Revenue can be found in lots of places, such as consulting contracts, project development work, one-time ad sponsorships, etc. But does generating revenue in an ad hoc way help you build a business that will scale and be sustainable?  Is the revenue you’re generating the income stream you want to bet on long term?
  • Potential investors: The dirty little secret about “coffee meetings” with investors is that even though they’re positioned as relationship building, you have to treat them like you’re actively fundraising.  Because most investors are judging you and your business in every interaction (a few are genuinely trying to be helpful or to get to know you).  So the easiest thing to do is politely pass on that coffee and stay focused on the business until you really want to be fundraising.
  • Big company partners: Big companies offer the promise of distribution, revenue, resources and many other things. But the vast majority of the time you get stuck in a never-ending cycle of meetings, negotiations and more meetings.  And if a partnership is struck, the likelihood of it amounting to anything is next to zero.  In the meantime, you’ve taken up a ton of time, resources and mental energy that has a real opportunity cost.  More often than not, these types of relationships can be all consuming for small companies and can distract them from your ultimate goals.
  • Corporate development: See Paul Graham’s excellent post.
  • Networking events: Just build a great company.  Your network will grow because you’re creating something incredible, not because you drank beer and ate cold pizza with a bunch of entrepreneurs in a converted warehouse somewhere.

At Homebrew, our primary goal with Fund I has been to overdeliver on our brand promise to the founders who’ve chosen to partner with us.  We prioritize our time and efforts such that the needs of our companies come first.  We often choose to pass on meeting with new startups, speaking at conferences, attending happy hours, etc., because none of those are immediately and directly in service of our founders.  And we’ve found that because we’ve made making these types of choice a habit, they get easier to make over time.

Saying “no” absolutely requires discipline and grit, because “yes” doesn’t disappoint someone or necessitate a difficult conversation.  But there is real value in saying “no” because it orients startups towards spending their limited time and resources on doing just one thing incredibly well.  And if you can do one thing exceptionally well, chances are you’ll have the opportunity to try another in time.

Any other things startups should say no to in the interest of focus and pursuing excellence?

What We’re Curious About at Homebrew…

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Every day we meet amazing founders sharing their ideas for how the future will evolve. In fact, we see about 150 new companies each month. Where do these teams originate from? Roughly 65% are referred to us by other founders or people we know. 25% are introductions via investors – either angels or VCs. The remaining 10% are a combination of cold inbound/outbound sourcing, often based upon a specific area we’re investigating. So recently we asked ourselves a question “is there strategic value in keeping our list of interests to ourselves?” That didn’t seem like a very good idea if our goal is to connect with thoughtful founders or inspire conversation. And thus http://bit.ly/HomebrewWhatIfs

What Ifs will be an dynamic list of ideas, questions and technologies that we are curious about and specifically want to connect with entrepreneurs to discuss and learn. We’ll edit, add and remove items as appropriate and link to our longer blog posts when it makes sense.

If you’re a founder in one of these areas or someone with domain expertise, we hope you’ll reach out. Do we hope to find new investments this way? Sure, but we’re also happy to just learn and hopefully help.

What makes a great product manager?

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This week I had the good fortune of attending a fantastic mentorship event for product managers organized by Josh Elman and Mina Radhakrishnan. In small groups, newer PMs had the opportunity to ask more experienced PMs questions about any topic related to product management or being a PM. One of questions in my group was, “What makes a great product manager?” I answered the question (hopefully helpfully!) by sharing what I look for when hiring a PM.

It begins with my firm belief that you need to hire PMs for attitude over aptitude. Product management done the right way is an unglamorous job executed with no formal authority. It requires PMs to accept that they need to be shit umbrellas and credit funnels. The job cannot be done without having as much EQ as IQ. And while many product management skills can be learned, I’ve found that attitude is something that can’t be taught. So hiring great PMs starts with attitude. But there are also four categories of skills that I believe are important for PMs to have in order for them to be great.

Product insight. Insight begins with empathy with the user. The best product managers are able to imagine themselves in the user’s situation and develop products that address the needs identified in those situations as simply and powerfully as possible. At the same time, they’re able to use data, ideas and feedback from many sources to inform and support the product decisions made in response to those needs.

Product execution. Potentially nothing is more important for PMs than the ability to just get shit done. No amount of insight compensates for an inability to help teams ship products. And that requires a relentless focus on doing whatever is necessary; to be the person who fills all the gaps and helps others to be successful. Great PMs are able to prioritize and do a small number of the right things incredibly well.

Over-communication. The best PMs establish trust with those around them, making themselves and their teams more effective as a result. I’ve found that the best of way of developing trust is not just by communicating, but by erring on the side of over-communicating. Great PMs need to be both willing and able to communicate clearly, concisely and often to make sure their teams have shared goals and that everyone impacted by product decisions has a shared understanding of why those decisions are being made.

Leadership. PMs need to lead without any formal authority. They inspire and motivate by articulating a compelling product vision and strategy. They establish credibility by setting clear objectives and roadmaps in partnership with their teams. And they earn trust by being honest and accountable. No PM accomplishes anything without a team that is willing to be led by him or her.

Because I believe that these “soft” skills matter much more than “hard” skills, I’ve sought out and been able to hire great PMs who come from all sorts of backgrounds. If you’re fortunate enough to come across the rare PM that has both the right attitude and demonstrated aptitude, definitely hire him or her. But if you meet a PM candidate with a stellar attitude yet only high potential aptitude, I’d encourage you to bet on that person. That bet will pay off in spades for both of you.

The only way to raise money: Make them believe

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Ignore what you’re reading about the current investment climate.  Yep, there is plenty of VC money out there and it’s aggressively looking for a home.  But that doesn’t mean it’s so much easier to raise money than in prior years.  The number of startups vying for those dollars is greater than ever.  With so much noise in the market and so many companies in which VCs can invest their cash, raising money is still about the one thing it’s always been about: making a VC believe.

There are many perceived reasons for why VCs make investment decisions.  But the reality is that it’s actually emotion that leads most VCs to invest.  A VC only invests when she finds a quality in a startup that touches upon something personally meaningful or important to her; a quality that creates an irrational belief in the startup’s ability to succeed.  I refer to this feeling as “emotional resonance”.  There are only three qualities that enable a startup to create emotional resonance with an investor.  If you don’t create “belief” based on one of these things, take your pitch and go home because there’s no term sheet coming your way.

People: The best way of creating emotional resonance is through your team.  Despite popular opinion, VCs are people too!  Just like entrepreneurs and employees, they also want to surround themselves with people they love to work with and can learn from.  They want to support founders who they deeply feel deserve tremendous success or who compel them to believe in the likelihood of their success.  Belief might spring from any number of team characteristics, including the team’s story, chemistry or insights.  Given this, it’s no surprise that most VCs will tell you that they invest in people first.  And that’s true.  It’s the emotional connection to those people that leads to the investment.

Potential: The second way of building an emotional connection is via the potential of your business.  The potential might be captured by the mission or the market opportunity or the product.  But somehow you need to leave the VC feeling that he or she absolutely wants the problem you’ve identified to be solved or what you’re doing to exist in the world and that it will be big.  This is why VCs have a hard time investing in products and companies that aren’t targeted towards them.  Something that’s not relatable is impossible to connect with emotionally.  It’s the promise of an early stage startup that can help a VC make the emotional decision to ignore the difficult reality that most startups fail.

Proof: If you’re an early stage company, you don’t have it.  Move on.

So have only one goal in your pitch to VCs.  Make them believe.  Create emotional resonance with your people or your potential.  If your story doesn’t do that, rework it so that you focus on establishing one of those connections.  Present the opportunity in a way that reinforces the excellence of the team or the enormity of your potential.  Because the only path to a VC’s money is still through emotion.

Homebrew’s investment interests: Local Marketplaces

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Local offline-to-online marketplaces are just beginning to impact the lives of individuals and small businesses, enabling them to save time and money and generate new revenue streams.  Where there was previously friction, opacity or scarcity, local marketplaces are providing convenience, transparency and abundance.  Homebrew is focused on supporting seed stage companies like these that are building the Bottom Up Economy.  Our prior experience working with and investing in companies such as OpenTable, Angie’s List and several less successful marketplaces has helped inform how we evaluate and support investments in this segment.  Here are some of the other key things we look for in startups employing a local marketplace model.

Focused use case: We believe that scale is the outgrowth of doing one thing really well. Accordingly, we prefer to see local marketplaces that nail a specific, focused use case rather than take a broad platform approach from the outset.  Homejoy is a great example of a company that has had relentless focus on a single use case, cleaning your home.  An early competitor, Exec, offered a platform where all kinds of services, including home cleaning, could be requested but suffered as a result.  One of the primary benefits of focusing on a narrow use case is that customers don’t need to think about how or why to use the marketplace.  Focus makes that abundantly clear.

Premium experience for sub-premium price: Great local marketplaces enable customers to have a new experience that is magnitudes better than the old. But the best marketplaces deliver that new, better (i.e., premium) experience for a sub-premium price.  Uber and Lyft are the prime examples of delivering infinitely better experiences than hailing taxis and typically at only modestly greater costs (even cheaper in an increasing number of cases).  One of our Homebrew family companies, Shyp, is similar in that it delivers an incredible shipping experience at standard retail rates.

Necessities over luxuries: There are local marketplaces for all kinds of products and services, but we prefer marketplaces that are focused on necessities rather than luxuries. Necessities tend to have higher transaction frequency, greater word-of-mouth and less susceptibility to economic downturns.  Everyone needs to eat, wash their clothes and get to work.  But not everyone needs to fly in a private jet, rent a yacht or hire a Michelin star-winning chef.  Those can be wonderful services and they can be delivered in compelling ways, but our view is that products and services that are truly need-based lead to more vibrant. liquid marketplaces.

Organic distribution: Word of mouth is the best marketing.  But there are other forms of organic distribution that can be just as powerful and cost effective.  For example, when Uber launched, taking a ride with a friend introduced many others to the experience.  When Shyp sends a package, the recipient is exposed to the delightfulness of the service.  Many of the most compelling local marketplaces have dynamics where the same person can be both customer and supplier over time.  Dog owners on DogVacay can be hosts in one transaction and customers in the next.  We love to see marketplaces that have these types of organic distribution opportunities embedded in their services.

Few emerging replacements: While we always tell startups not to fixate on competitors, in today’s world where switching costs and barriers to entry are often low, we prefer to invest in local marketplace startups that are solving problems that few others are addressing with new solutions.  For example, for better or worse, we’ve avoided investments in the various types of food delivery companies because while frequency is high, there are many replacement products available.  This makes it hard to to acquire customers cost effectively, to protect margins and to maintain significant market share over the long term.  Many markets have room for more than one “winner” but very few have room for more than two or three.

The above characteristics may be unique to Homebrew, but we also like to see things that others have recognized as important to marketplace businesses.  Many of these are well-documented by Bill Gurley in his excellent posts on marketplaces and platform transaction fees.  In the past year, we’ve seen local marketplace startups in countless areas, including tech support, parking, home services, cleaning, laundry, food, labor, property rental and transportation.  We’ve made investments in several verticals, including shipping with Shyp, legal services with UpCounsel and property management with an unannounced investment.  But we believe that there are many more use cases for which compelling products and services can be delivered via a marketplace model.  If you’re starting a local marketplace company, especially in specific labor verticals or providing B2B services, please contact me at satya at homebrew.co.

Additional posts on Homebrew investment themes:

Bottom Up Economy

Vertical Software

 

Homebrew’s investment interests: Vertical software

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Homebrew’s first fund focuses on what we’re calling the “Bottom Up Economy.”  The Bottom Up Economy thesis states that as technology becomes more affordable, flexible and accessible, many industries that have not benefitted from or been impacted by technology historically will finally do so  Software is eating the world in many cases but also enabling the world in others.  Accordingly, we spend a great deal of time getting to know entrepreneurs and companies building software solutions that disrupt industries or enable the existing industry players to compete more effectively.  And we’ve already invested in companies serving several different areas, including legal services, mental health, logistics, communications, financial services and commercial construction.  Given our focus on vertically oriented software, I wanted to share a little bit about the attributes we like to see in those startups.

Teams with a unique POV: As my partner, Hunter Walk, has written, we’re excited by teams that aredisrupting industries with love (and just enough greed 🙂 ).  Teams that have experience in the domain tend to have a strong POV about what’s broken and how to fix it.  But often times the most unique insight can come from teams outside of their target industry who are approaching things with fresh eyes.  So we prefer to work with teams that can demonstrate domain expertise without the stagnation of assuming status quo is just the “way things are done”.  What’s critical is that the teams we invest in have an insight that many others either have not seen or don’t agree with.

Distribution focus: We tend not to invest in software companies that are 100% dependent on selling into theC-level via a direct salesforce.  Instead, we prefer a bottom-up entry point via individuals or teams within the enterprise or small business.  The startups that intrigue us have a well-articulated plan for how to get distribution of their software in the industry they are targeting, and most often that includes a strong likelihood for organic or viral growth. No matter how slick and easy-to-use your software is,if you build it they probably won’t come.

Long-term advantage: Nearly all software is replicable, so we look for companies that are likely to have long-term differentiation, ideally via customer or data network effects.  Network effects mean that the value of the software grows as more people use it either because it allows them to interact with more people in the context of their work or it helps collect and aggregate data that informs and improves their work.  The strongest network effects enable customers to benefit from product usage that occurs even outside of their companies (i.e. industry-wide).

Acute pain: VCs are notorious for categorizing things as an aspirin versus a vitamin or need-to-have versus nice-to-have.  But there is a good reason for this.  Unless software is helping addressing an acute pain or delivering value that can’t be ignored, it likely can’t attract the attention it needs to be used or purchased given the limited time of people and budgets of companies.  We like to see software that is addressing what is likely to be one of the top 3 hair-on-fire issues.  This kind of software has a better chance of drawing attention and dollars.

Widespread pain: In addition to the pain being acute, the pain needs to be felt by a lot of people.  This is important because companies need to be able to reach “venture scale”, usage and revenue that allows for a company to be valued many times higher than the value at which a VC firm invests.  For Homebrew, our goal is to invest in companies where we can see a path to returning the value of our entire fund ($35 million) from an investment in that company.  Both the total dollars invested and the price of investment have an impact on that math, but it generally means that we need to believe that the company can eventually generate $100 million in annual revenue.  That kind of scale requires a widespread feeling of acute pain.

Painless path to first dollar: It’s obviously easier to get someone to use something that is free than it is to get him or her to pay for something.  So we like to see products that are likely to have a painless path to the first dollar payment.  It becomes much easier to extract more economic value once the customer is convinced to pay for something because at that point she clearly sees some value in the product that is greater than what she is paying.  This typically means that there is a single person who has three characteristics: 1) she feels the acute pain personally 2) she has the budget needed to buy (can just put it on her company credit card) and 3) she can pilot the product easily (self-service sign-up, no IT involvement).

While we don’t have hard and fast rules or a checklist approach to evaluating investments, we always think about the criteria above when looking at opportunities in vertical software.  If you’re taking a vertically focused approach and have a story to tell that fits with our preferences and approach, don’t hesitate to get introduced to us or to reach out directly.

Trust and shared goals in startups

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Of the many wonderful things about starting Homebrew, possibly the most satisfying has been working with a partner, Hunter Walk, in whom I have absolute trust.  That trust stems from a longstanding relationship, a commitment to helping each other be successful and a shared vision for what we want Homebrew to be.  And it makes it possible for work to rarely feel like work.  Most importantly, that trust allows us to focus exclusively on the activity of the fund and being supportive of our partner companies.  No time, energy or resources are wasted on questioning each others motivations, actions, decisions or feedback.

All of this has reminded me how much trust is fundamental to the success of startups (Homebrew is our own startup after all).  I would argue that no characteristic impacts the productivity, motivation, camaraderie and longevity of a team more than trust.  But how do you assemble a team that trusts each other when trust is usually forged through shared experiences over time?  Culture, values, transparency and many other things certainly contribute to building trust.  But the foundation of trust in every startup I’ve ever seen have it is a shared goal.

Whether you call it the Why, a mission statement, a shared vision, a true north or a common understanding of why the company exists, there is no replacement for everyone on the team knowing why they collectively and individually come to work each day.  Startups are faced with many obstacles, unknowns and failures.  People have to wear many hats and pitch in across many different areas.  There’s often little, if any, time to coordinate activity, assign responsibility or formulate a plan of attack.  When your team has a shared goal it becomes infinitely easier to assume, and eventually know, that your teammates are doing the right thing.

In startups, it’s the job of the founder(s) to repeatedly communicate the shared goal of the company and to make sure that anyone joining the team understands and shares that goal as well.  At Homebrew, we prefer to work with mission-driven founders because they seem to do this innately.  As a result, they are often successful in building teams and cultures that are based on trust.  And these teams leverage that trust to become high-performing, making work feel nothing like work at all.

Better isn’t good enough

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I previously wrote about what I think is required for a successful mobile product.  With all of the activity in the social messaging/communications/networking category (Whisper, Confide, Secret and Wut being the latest buzzed about apps), I thought I’d dig into one of the key points I made, which I believe is even more true in this category.  It’s not good enough to be better, you have to be different ─ in a way that helps address an entirely different use or possibly a similar use case dramatically differently.

In the case of messaging, it’s not enough to innovate along an existing dimension.  You need to create an entirely new product dimension.  It’s clear when you look at the breakout messaging apps that they clearly did something different relative to the apps that came before them, and in most cases that helped those apps address different user needs.  Facebook popularized status updates within a private network.  Twitter made status updates public (changing who sees the update).  Instagram made status updates visual (changing the format of the update).  WhatsApp made status updates (via SMS) free.  Snapchat made status updates ephemeral (changing the permanence of updates).  And what of the apps that were hyped and have seemingly gone away?  What new dimensions did Path, Frontback and MessageMe introduce?

Of the “hot” new apps, it remains to be seen which will pass the test of time.  Whisper makes public status updates anonymous (changing who sent the update).  Confide has made text status updates private and ephemeral.  Secret has made the anonymous status update visible only to a semi-private group.  Wut has anonymous, private and ephemeral status updates(?).  Are any of these apps introducing new dimensions that address different use cases or needs?  Fortunately, or possibly unfortunately, social messaging companies doesn’t typically fit our Bottom Up Economy thesis.  So we don’t have to bet which of these products will become the next Facebook, Twitter or Instagram.  But if I had to bet, I’d pick the one that does the most different thing best.  Because better just isn’t good enough when launching a product.

Chemistry and emotional resonance are key to co-investor relationships too

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Fred Wilson and Bijan Sabet recently wrote really wonderful posts about how important personal chemistry and the ability to imagine working at the company are when making an investment in a startup.  I couldn’t agree more with both of them.  When I recall investments I’ve made over the course of my career, the common thread is that the teams and ideas had “emotional resonance” for me.  There was something about the teams and opportunities that spoke to my heart as much as my mind – to such an extent that I wished for them to succeed badly enough to be irrationally optimistic about their odds of success.  I think it’s rare for an investor to make a commitment of his or her time and capital when that emotional resonance is missing.

At Homebrew, that feeling often comes when I hear that the Why behind the founding of a company comes from a very personal place (read about the Why behind our portfolio partners on our blog).  It’s easy to get excited about working with mission-driven founders.  Having the opportunity to partner with them as they build the companies they envision is a true joy.  That emotional resonance leads to tight alignment with the founders’ vision, goals and preferences and a fantastic relationship because our feelings of success are inseparable from their success in building their companies.

A solid working relationship between a VC and founders depends on this alignment, as well as mutual trust and respect.  While most entrepreneurs may take that as a given, they often don’t appreciate that it’s just as important for the relationship between the two or more VCs that are jointly investing in a startup.  When raising capital from more than one VC, particularly where the VCs are investing similar amounts of money, it’s critical that the founders make sure that the VCs are aligned with them and each other and also have mutual trust and respect.  Otherwise, they can expect that disagreements between investors will make an already difficult startup road that much rockier.  So how can you check if your potential investors are on the same page?

Talk about it: Have conversations together and separately with the VCs about everything from near-term milestones to financing strategy to long term vision.  The more you hear how the VCs are thinking about your business the more data you’ll have to determine whether they have a shared perspective.

Make them talk: Good investors will want to build a relationship with co-investors before committing capital because alignment, trust and respect amongst all parties should be as important to them as it is to you.  No one should want to go into a set of relationships expecting that there is likely to be discord.

Negotiate: As you’re working through the terms of your financing, you’ll most certainly have to negotiate with each VC separately.  Inevitably, you’ll have have to talk about issues where the the VCs differ with each other and/or with you.  How much are the VCs trying to understand your preferences versus attempting to position themselves favorably against each other?  Are they open to talking through issues with the other VC?  Negotiations can reveal a lot about how the VCs will work together and with you after the investment is completed.
Personal chemistry, the desire to work together and emotional resonance are just as important when selecting co-investors as it is when selecting a team to invest in or a choosing a single VC investor.  Don’t make the mistake of assuming that your co-investors are aligned or accepting that they don’t necessarily share the same perspectives.  It’s hard enough to build a company when everyone is working well together.  It becomes much harder when the people who have significant influence on the company (investors and founders alike) don’t have a shared definition of success.

How to Diligence Your Investors (Crowdfunded or Not)

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The investment world is buzzing about AngelList (Disclosure: I’m an individual investor in the company) and the impact that it will have on angels and VCs, However, part of the conversation that has been missing is the impact on startups. The obvious benefit is that there will be more options for startups to raise capital quickly and easily. But the potential downside is that choosing the right set of investors for a company may become much harder for entrepreneurs. While an abundance of capital options is wonderful, choosing investors should be based upon more than just valuation and dollars invested. After all, an investor is a long term partner for your business and the process of choosing the right partner should reflect the ongoing nature of this relationship. Startups spend hours upon hours vetting potential employees, abiding by the mantra of hiring slowly and firing quickly. Why wouldn’t even more diligence be conducted on potential investors — people who can’t be fired and actually often have the power to fire you! Here’s how to diligence potential investors:

References

Ask to talk to current and past portfolio company founders and CEOs. Be sure to talk to a couple from companies that failed. And definitely leverage your network to reach out to a couple references that the investor did not provide herself. Would the entrepreneurs take the investor’s money again? When there was bad news, how did the entrepreneur feel when telling the investor and how did the investor react? Ask for at least one instance when the investor helped with a critical company challenge and what specifically she did to help. If possible, consider talking to angels or VCs that the investor has worked with previously.

The Airport Test

You’re traveling with your investor and your flight is unexpectedly canceled. You’re stuck at the airport for the next few hours. Would you look forward to the time together or would you instantly fill with dread? A similar test is the Beer Test. At the end of a long day, would you enjoy grabbing a beer with the investor? Spend significant amounts of time with the investor, both inside and outside of the office, to answer these questions. The goal of these tests is to figure out whether you like and trust the investor. A good investor is going to be your toughest critic, your biggest cheerleader, your best salesperson and your most compassionate psychiatrist. You’d better be irrationally comfortable with that person and his passion, integrity and values before taking his money.

Expectation alignment

When choosing an investor you’re choosing a partner to help you build your business. Just as you would make sure you have alignment of expectations with a cofounder, you need to do the same with investors. What does the investor see as the key milestones before the next financing? What kind of financial outcome is the investor expecting? How frequently and in what ways does the investor expect to interact with you? Asking questions and sharing your perspectives ensures that there are no surprises for either side down the road and also helps set the stage for an honest, direct, collaborative relationship.

Personal stories

At Homebrew, we love hearing how entrepreneurs have gotten to where they are and the “Why” behind the founding of their companies. Similarly, we advise entrepreneurs that they should know the personal stories of their investors. You’re going to be working with your investors very closely and you’ll get to know each other both personally and professionally. Find out if you have common ground upon which to build a long relationship. Why is he an investor? How did he end up being one? What does he like most and least about being an investor? How does he think he can add value to your company?

Getting to know your investor well before the investment is critical because a financing is not a single, moment-in-time transaction but a long-term commitment to each other. The relationship after funding should feel like a continuation of the relationship pre-funding and not like something different now that the courtship period is over. As an entrepreneur, you’re adding to your team every time you choose an investor. Keep in mind that there is much more to consider than what can be captured in a term sheet.