What Funders are Looking For: Five Key Indicators You’ll be a Good Investment
In the categories:
- For Startups
There’s more than one bottom line when it comes to investing in the impact space. By incorporating impact into the ROI equation, funders’ priorities inevitably become more complex, creating an even more delicate balance in the relationship between founder and funder.
While every funder looks for different things to show that a startup aligns with their investment strategy, after talking to Shannon Farley, Executive Director of Fast Forward, Morgan Debaun, CEO and Founder of Blavity, Josh Stearns, Associate Director of the Public Square Program at The Democracy Fund and Julie Menter, Principal at New Media Ventures, it’s clear there are some key indicators that most funders consider when assessing a startup. Whether it’s a VC firm or a large foundation, funders are looking for evidence that you’ve got what it takes to succeed, and there is no better evidence than how you approach the work of your startup. Here’s what they look for when they’re considering investing.
Vision & Leadership
In the early stages of a startup, there aren’t usually many proof points, so funders often base their decisions on the team. Ideas are a dime a dozen — it’s the people who make them a reality that offer the real value.
According to Farley, Fast Forward looks primarily at the leadership when considering accepting startups into their accelerator. They want to know if the founders have experience with the problem, understand their thought process and how they show up as leaders to drive results — whether that’s communicating the vision or making sure the team is effectively working towards strategic milestones.
As Debaun says, “My job as CEO is to make people feel involved and like they believe in the vision and potential of the company. And that’s what I did.” She went on to explain, “A big part of being CEO and fundraising is inspiring other people to want to be a part of this and to want to help you either for financial return or the emotional return of seeing you and your company win. [In those early days], I couldn’t guarantee a financial return, but I was promising emotional return — even if I fail I will impact the tech community and black community.”
Interestingly, there are new models emerging that experiment with ways to invest in people rather than an idea. For example, StartLab funds teams of promising entrepreneurs who are encouraged to experiment and iterate on an idea until they build something successful. Pipeline Angels builds the pool of women angel investors to ultimately expand funding for women founders.
Even if they believe in the leadership of the startup, funders want to know the company’s business fundamentals are strong. They want to see smart thinking around revenue, strong management and a constructive relationship between the board and staff. In reviewing 500 applications as part of NMV’s “Resist and Rebuild” Open Call, Menter recalled seeing many proposals with a great idea and a charismatic leader. But the ability to execute on their vision is often the difference between successful startups and failures. Menter observed, “Ideas aren’t hard to come by. Success is almost entirely about execution.”
Ability to Learn
Josh Stearns from the Democracy Fund wants to see that founders and their teams have learned from their work. “We look for organizations that have shown they can learn, who have illustrated they are monitoring key indicators and thinking deeply about how they’re learning and adapting as they go,” says Stearns. “Seeing an organization thoughtfully gathering feedback and adapting strategy….this is a strong indicator for us, especially in an uncertain moment.” Taking and incorporating feedback demonstrates a founder’s ability to learn and adjust over time.
“Being a tech nonprofit is hard. A successful one needs people who are resource magnets.” Farley says, “We are looking for leaders that will attract resources — money, talent, and visibility.” With the right mindset, founders can find access to the resources needed in unexpected ways. Echoing Green identifies this as a founder’s ‘resource magnetism.’ Investors want to know that you’re able to inspire those around to you contribute their knowledge, skillsets, tools and networks to help your startup succeed.
It can be tempting to minimize any uncertainty or risk when asking for help. But, “when people come in and talk about how they are the savior, that is the red flag for us,” Stearns says. “We tend to be really humble and look for an organization that is humble, that may be pioneering, but is also doing important work. I want a founder to be able to say ‘Here are the five things we think we are doing right. Here are the three places that might fail, and this is what we are doing to address them.’ Knowing someone can be honest is important.”
Both funders and successful founders know that how you run your business impacts the outcome of the work, including the customer experience, company culture, the return on investment and the startup’s imprint on the world. By keeping in mind these critical considerations, you’ll be more prepared to find the right funders and champions that will help your startup succeed and share your vision for the kind of impact you want to make on the world.
This is part of a series on fundraising for startup founders focused on impact, and is a collaboration with Shannon Baker, Director of Partnerships at NMV. We’ve also released an infographic that shares all our tips, which you can find here. Let us know if you have questions or more suggestions for resourceful entrepreneurs.