How to choose investment partners & 3 top tips for female founders

Choosing an investment partner will be one of the most crucial decisions you will make as a founder CEO. Choosing wisely can mean having the backing of a powerful and incredibly useful partner.

This choice is especially important for female founders who are often interested in impact as well as scale.

Choose your investment team wisely

Investors are part of your support network and will play multiple roles. Investors are often Board members, act as mentors and will recommend other advisors and Board members. They will also have their preferred list of consultants.

They will have preferences around the roles they play, but you have a choice.

My top tips for female founders when researching and choosing an investment partner:

1. Don’t get distracted – stay focused on the role of the investor

2. Research your options – make time to understand the choice you are making 3. Set expectations upfront – consider the relationship you have with your investor and how they will integrate into your business

Once you’ve worked through these, the next steps are to build your list of potential investors. Read on to find my suggestions of impact-driven investors, ideal for female founder CEOs.

1.   Stay focused on the role of the investor

Once you’re ready to raise Series A you’ve likely outgrown much of your network. The networks you develop as an early-stage business through meetups, accelerators and incubators, angel investors and service providers are tailored to the needs of an early-stage business.

As your business grows you need people around you who know about the challenges of growth-stage companies. Frustratingly, this is a whole new set of contacts that need to be built.

Founder CEOs often rely heavily on their Seed or Series A investors to fill that gap to their detriment. VCs are not everything.

You can expect to get a good level of support from your investors in the first year or two. After that, particularly with venture capital companies, if your business isn’t hitting the required milestones, their attention will wane. Understand that your company is one of many in a portfolio.

There are two primary roles investors play. Anything else is a bonus. Knowing what you should be relying on your investor for means you can be prepared to get the other support you require elsewhere.

The two primary roles investors play

1) They provide financial capital.

2) They provide access to follow-on funding.

Good investment partners provide validation with other investors, partners or customers, access to experts and introductions relevant to those primary roles.

It is not an investor's role to validate or believe in your business. An investment manager will frequently provide emotional support, strategic direction, and act as a sounding Board to founders. But don’t fall into the trap of judging your business based on the attention you’re getting from them.

Founders are often blind-sided by getting or losing investor attention, compromising their business.

EXAMPLE: From a fellow Angel Investor, falling off the VIP list

One company I invested in had also received seed funding from a big brand VC. When her company fell off their list of rising stars, she felt it deeply. It challenged her belief in the potential of the company to deliver on its vision.

The company’s product delivers impact in lock-step with revenues. Delivering on the impact promise, at scale was a deep motivator for her. I had to challenge her that just because she was off the VIP list it didn’t mean the potential wasn’t still there and within reach.

After working closely with her, she is now back on track and has raised her Series A round with a very prominent VC.

EXAMPLE 2: This time from a founder, star-struck by their investor:

When this investor said they would back me and my business idea I thought it MUST be good. I jumped into developing the product without a second thought. Now I see I was just one of several bets for them at the time.

They hadn’t challenged the concept or whether there was a market for it and neither had I. I’ll soon need to raise more money and I need to re-visit whether my solution is really solving a big enough problem for my market. I could have done this a lot earlier.

To avoid being blindsided by investor attention, it is important to maintain a strong network of support around your business in addition to your investors.

It is your role, as founder CEO, to make your own decisions on what the business needs to reach its potential and what you need to successfully lead it.

Your network should provide a varied and balanced perspective to support you in those decisions. Such as advisors, mentors, consultants, peers, a professional business coach, and formal advisory Board or Board members.

Whilst it is appropriate to feel responsible for delivering on the vision you sell to your investors, it is their decision and their risk to assess. 

2.   Research the choice of investors

There is much written about what comes with investment and the different types of investment partners. For early-stage companies, investment can come through Accelerator and Incubator programmes and Angel Investors. For Seed to Series A stage companies, there are incubators, Angel Investors, Family Offices, and Venture Capital firms. There are also hybrid investors who combine capital, their experience, and networks.

Here is a summary of what you can expect and at what cost.

Accelerator and incubator programmes

Money often comes with an educational programme, practical support, a peer network, and introductions to mentors, advisors, and investors for follow-on funding. Depending on their reputation, they may also lend credibility to your business. They are generally free and will opt for equity in your business.

They can breed a competitive culture between founders and encourage founders down a path of raising investment which doesn’t always suit those with a focus on impact. There are accelerators who invest in businesses that balance profit alongside purpose and attract over 50% female founders.

Angel investors

Angels invest their own money either independently or via an Angel Investment Group. Whilst they are investing for financial return, if your business is delivering value to society this could be part of their investment philosophy. They may have an idea of when they’d like to see a return, but it would be uncommon for this to be a condition, making them a good option for impact businesses.

They may be ‘silent investors’ or they may be a sounding board and offer introductions. If the money they are investing is significant for them, you may find them frequently calling for updates and asking a lot of questions. This can be challenging if you have many independent investors.

They may ask for a place on your Board or to be a Board observer. Take time to think through who you want at your Board meetings before agreeing to this.

Family offices

These vary but some do invest directly in companies on behalf of a high net worth individual or family. Single-family offices have the flexibility of Angel investors. They are likely to have a defined investment philosophy that could include a balance of impact and returns across a portfolio.

It is likely a family office will have both commercial and philanthropic interests and are more likely than angel investors to provide follow-on funding.

Venture Capital

VC firms are commercial ventures. They are set up to select and scale high-growth companies. Through their due diligence process, resources they provide founders, and networks they nurture to secure follow-on funding, they can be great partners if you intend to grow rapidly to a sizable business.

VCs raise funds from Limited Partners. Partners in the firm may put money in and they will raise capital from multiple sources outside of the firm based on the terms of the fund. The firm takes a management fee and may take a percentage of the fund’s profits when it expires.

They have strict rules around the types of companies they can invest in, and they have a deadline by which they need to see the return they promised their Partners. On average it will be 5 years to invest and 10 years to make a return. Once a fund is raised it is a race to the finish line.

VCs will ask for a seat on your Board and their money will come with conditions. Take time to fully understand the implications. Once invested, they’ll throw everything they’ve got at you to help you succeed.

You’ll be assigned an investment manager who will attend Board meetings, be a sounding board, advisor, offer moral support, and make introductions. They may run events and workshops and showcase you and your company. They often put aside follow-on funding for their investments and will work closely with you to raise your next round of funding.

But if your company isn’t hitting its milestones, they’ll turn their attention to other companies in the fund portfolio. Venture capital firms must deliver on the returns they promised their Limited Partners to survive.

There are venture capital firms with investment philosophies that are more suited to female founders, diverse founders or balance impact and purpose and some are more patient around their timeline for returns. Meaning there is more time to realise the company’s potential before pushing for a liquidity event.

I’ve researched VCs that make a difference; firms interested in under-represented founders and impact. Download my VC hotlist for more information.

Hybrid investors

Recently I’ve seen models where investors group together to invest in a company both with capital and expertise. Their intention is to provide hands-on support to get the company to the next stage of growth; from Seed to Series A and beyond that, set up for a liquidity event.

Since they are working on the business, they only take on 4-5 companies a year across 4-5 investment partners. They’ll bring in experts from their network to perform consulting roles with the promise of equity or payment once an investment or revenue milestone is achieved.

3.   Set clear expectations

An investor is for life. The life of your business that is. It is often said that it’s easier to divorce a spouse than split with an investor. For this reason, it is important to have clear expectations going into the relationship.

Ideally, you will have shared values and priorities for the business, be working to similar time frames for growth, want the same level of interaction and involvement in business governance.

An investor's investment philosophy is the first port of call to know whether you are aligned. A robust conversation around investment terms will help you and the investor be clear on expectations around business priorities and performance.

But ‘contracting’ goes beyond contracts. What’s often missed is a conversation about how that agreement will be implemented. Making time and space to answer the following types of questions:

• What does each party think is an appropriate level of governance, reporting, and the Board’s role?

• What can a founder and investment manager expect of one another day-to-day? How much does an investor really want to know about operational challenges and how much does a founder really want to share? What are the implications and where should boundaries be set?

• Do both parties see the founding team continuing to lead the company as it grows? How would they like to work through founder transitions together?

The ongoing, formal relationship with an investor is via the Board and reporting. At Series A, investors will likely insist that you formalise a Board. A formal Board can be a great help or a hindrance depending on how it is established and who is on it.

One VC I have a great deal of respect for explained their role and the role of a formal Board this way:

Good governance, from the early stages, really helps set up a company for success. Our role is first to share what we see as good governance and the role of the Board. These are experienced entrepreneurs; they don't need hand holding. But this often isn’t something the founder has thought about previously.

We work with our founders to decide the cadence of Board meetings, prepare for Board meetings, what happens in those Board meetings, what needs to taken to them.

It helps to have a non-executive director on the Board. This can balance having two founders or family members on the Board. We don’t want to overwhelm the founder in those early days. Three people on a Board is a good number to start with. Diversity, including gender diversity is important.

It is important to establish a Board at the seed stage early stages of a company; that the governance process is there and working, for it to become ingrained in the company's processes.

However, it doesn’t all go so well. When it goes wrong for founder CEOs this is what I often hear:

“The Board is such a burden. I spend half of my time writing reports for them and answering their questions rather than doing my job.”

“In the first round I took money from a number of angel investors. Two were new to investing and the calls and questions I’ve had from them have been a distraction from running the business.”

In my interview with Connie Henry, she spoke about unpicking herself from the Board of Trustees and how important this was to allow the business to thrive and grow without her and to create the legacy she had envisioned.

Connie’s next realisation was that to best serve Track Academy, she needed to empower her Board to replace her in the role of CEO, if that was best for the business.

An injection of fresh blood into the membership is an effective way of empowering a Board. Long-standing members are loyal, they’ve worked with the founder since the early stages. New Board members see the business as it is today, and what needs to happen for it to grow.

As a Founder, it’s your responsibility to remove your ego from the situation, give everyone within the organisation the tools and the power to function without you, and to accept that it might just happen.

- Connie Henry.

Think about the Board as an opportunity to take a macro view of the business and put good business governance (checks and balances) in place. Consider how the business can benefit from having certain individuals on the Board. Design the Board’s role, accountability, decision-making process, meeting structure, and reporting to draw out this value.

Next Steps

Build your target list:

1. Know what you want

2. Create a long list of investors

3. Assess your investors

4. Create a shortlist to approach and pitch

Know what you want

The best way to ensure you find the right investment partner for you and your business is to start by knowing exactly what you’re looking for; beyond a £ number.

A checklist will inform your long list of investors, keep you honest when offers are made, and prevent you from becoming starstruck by the big money, big brands, and charismatic individuals.

When building your checklist, consider the characteristics of your company to seek alignment with an investment partner. Such as:

• Business purpose

• Business stage

• Industry

• Product type

• Your founding team (female/diverse/personality)

• Appetite for accelerated growth

• Further funding requirements

• Networks required for the business (not held by the founding team)

• Envisioned founder role in the company long-term

• Governance expectations; influence and control of the business

• Tradeoffs you’re not willing to make

Assessing investors

When choosing an investment partner, think of them as you would a co-founder. What capital do they bring to the team? Capital comes in three forms: financial, human, and social.

Your investor's primary two roles should be the focus of your assessment.

Financial Capital

They are actively investing, and your business meets their criteria. There is money on the table for your business.

The conditions of their investment won’t compromise your vision for your business. Their investment approach and fund allocation provide for follow on funding. They set aside a pool of funds to follow-on fund their investments or seed the next investment round.

Human Capital

Your investment manager knows what is required and has a track record of securing the next round of funding (sale or IPO) for investee companies. They will give their time and expertise to support you through the process of pitching and negotiations.

They can pull in the human capital required to get your business ready for the next stage of investment.

Social Capital

Their name and reputation provide validation with other investors.

They are well connected to other investors, who are actively investing, and your business meets their criteria. This might be other seed investors for bridging funding and Series A+ investors for your next round of funding.

Aata works with female founders leading impact businesses and the VCs who support them.

We’ve done some of the hard work for you and drawn up our hot list of 7 VCs with a difference.