Capital and Wisdom: The Rare Combination in Investors
To an entrepreneurial business, money is oxygen. The three essentials for life may be air, water and food, but without the first, the other two are irrelevant, said Canvas Venture Fund Partner Ben Narasin at a recent Ynext Incubator bootcamp. Money is what allows your business to breathe and keep the blood flowing.
That doesn’t mean, however, that you should take money from any source, Narasin says. When you’re looking for an investor, you want one who brings not only money, but something equally valuable: wisdom. Wisdom is distinct from intelligence. Wisdom is reflective of good judgment honed through long experience – which most likely includes some bad judgments in the past. You want to have the opportunity to learn from your investors’ mistakes, pains they endured and how they handled difficult situations, says Narasin.
The combination of capital and wisdom is extremely valuable – and extremely rare. Some investors do little to nothing to help the founders they have funded – or worse, they add negative value. Good investors are in it for more than the payback or the fees. They are looking for opportunities where they can add value. They will invest a lot of time to get to know the people they are considering backing. Narasin suggests you, the entrepreneur, should expect to do the same. It really is a people business, and there is no substitute for one-to-one connections, he says. After all, when it gets to Series A&B funding, Narasin says, “these are people that you’re going to have to live with for a long time on your board. And regardless of a venture firm’s brand name or reputation, the success of the relationship always comes down to the individual partner who has chosen to elevate your company to the rest of the firm.”
Seed vs. Series A Investors
Because Narasin has worked with both seed and Series A (and B and C) investing, people often ask him the distinction between the two. He has likened it to the difference between betting on the “sizzle” and on the “steak.” With seed funding, the investor has enough faith in you and your idea to place a bet – essentially giving you a chip to play in the belief that you will beat the house. It’s the chance to prove your concept works. But the seed investor will only provide funding based on the conviction that the idea will work, and is strong enough to go to Series A in six months. The seed investor, by definition, gets in at the highest point of risk, with the highest potential for reward.
Investors are always hearing pitches from really smart people – that’s price of entry. A smart person can get seed funding on the strength of a great idea presented with passion and vision. Series A, on the other hand, is about what you’ve actually accomplished – a track record that includes a proven business model, a solid customer base, sales, a balance sheet, and an ability to project into the future based on what you’ve done to date. The Series A investor wants to see a detailed financial model and understand how you are going to build the business to deliver on your vision.
As an entrepreneur, Narasin says you need to have a “northstar” toward which you are relentlessly navigating. Think of seed funding as the first “island” on your journey, where you refuel, set your course, and then keep advancing to the next series.