When setting your fundraising goals, the cash is just the tip of the iceberg
This year Wellstreet celebrated its 5th birthday. As a (very) early-stage investor, we can now look back and see the fruits of the investment strategy we designed back at the start. Of course, it’s not an easy task to spot promising companies at an early stage when they have only a founding team, haven’t launched yet and sometimes don’t even have a product prototype. So many variables need to come together over time - and some of those are beyond the founders’ control. With all our successes and failures in mind, we are very proud of the portfolio we curated throughout these years, not least our alumni like Tibber, Checkin.com, Bambuser, Returnado and many more.
In broad terms, as an investor one can take one of two approaches. Either you believe that once an investment decision is taken, the dice is thrown, it will either succeed or fail (or land somewhere in between) and there isn’t much you can do about it. Or you believe that you, as an investor, can play a crucial role in ensuring success. Venture Capital is very much built on the latter premise, but this translates into a very broad spectrum of support and intervention with each investor. At Wellstreet, we fundamentally believe in the latter.
An investment relationship needs to be beneficial for both parties, and what our alumni companies make of our relationship with them is best assessed through the test of time. “[Petter] Stordalen was one of three on the wish list. Mikael Wintzell, former top executive at Klarna, and Al Gore were the other two.” That’s what Edgeir Vårdal Aksnes said in this interview after Stordalen made his grand exit in Tibber. It’s quite a feat to be on the same list as Al Gore, and our founder and CEO Mikael was very humbled. We invested in Tibber back in 2016 and it has been a privilege to see them grow. Our approach is unique and doesn’t suit all founders, and the same can be said for many investors. We couldn’t stress enough how important it is to really define what type of investors you want and understand how the ones you choose can directly affect which direction your company will take and your chances of success.
How to choose the right investor for you
Investments should be seen in the same light as any relationship, a two-way connection, where both parties must trust each other to give their best in order to achieve a common goal. That goal can have different faces - market domination, exit via an IPO or M&A - but in general you do need to be aligned with your investors on what your goal is, and what your strategy is in order to get there. While investors do their due diligence on prospects, startups should also assess whether that investor’s assets, skills and approach will bring to the table what the company needs. Yes, money is good, but it is definitely not everything and taking in venture capital can sometimes be the worst decision you ever made.
So what are the questions you can ask to really assess an investor? Here is what we recommend you look at:
- Market: Does the investor know or are they interested in your industry? If not, how important is it that you’ll have to introduce it to them and that they understand it?
- Support: Will they be an active or passive investor? Which option is the best for you at the moment and in the coming years? Do they mean to be active with board work, free services, multiple touchpoints and strategic workshops? Advice? A good way to assess this is through your interactions with them already during the investment decision phase. What types of questions are they asking? Are they challenging your thinking? And are you enjoying the challenge? Have they altered your thinking? Have they already made introductions for you, even before they have decided whether or not to invest?
- Assistance: What does your company need at the moment besides money? Where are the gaps and which ones can they help you fill: business development knowledge, technology from other portfolio companies, connections in a specific industry, tools?
- Values: Are their values and guidelines in sync with what your company wishes to push forward? Are they an interesting name/brand to have associated with your company? How does having them on the cap table affect further rounds?
- Focus: Do they usually invest in companies at the same stage? With similar growth strategies, cash needs, in the same geographies? Is this the right timing for this specific investor?
- Other investors: Are all the investors you are bringing together in this round aligned with you and with each other? Whether it’s in this round or looking at upcoming rounds, can you already anticipate a clash of approach and strategy between them?
We believe that our direct involvement and strong hands-on approach have been and continue to be a game-changer for our portfolio companies. We have the knowledge and experience not only to guide them but also the resources to execute on the advice we give. However, we know our approach isn’t for everyone! Our synergies with the company are our number 1 criteria in any deal and we expect the same from our prospects. Our first question is always “does this company need Wellstreet, specifically?” Sometimes things get tough, we can’t always agree or be aligned at every strategic turn, but our relationships with our founders are our biggest priority, and that’s why we are so happy that once our companies fly the nest and after the dust settles, they are proud to have chosen us as an investor.
To all our portfolio companies, thank you for choosing us on your journey!
