I recently met with an entrepreneur raising money for their startup. What was interesting about the meeting was that one of the startup’s investors also attended. This isn’t the first time that I’ve seen this happen, but it’s pretty rare.
When this happens, you naturally question why the investor is attending the meeting. And I can think of two possible reasons.
The first is that the entrepreneur and the investor agree that the investor will be able to better pitch, or at least add significant value to the pitch of the entrepreneur’s business. This isn’t a good sign. The startup’s success after the meeting will be determined by the entrepreneur who spends all their time working on the company, not the investor who sits in meetings and offers advice once every few weeks. So the entrepreneur needs to know their business and be able to communicate and motivate others to want to be part of it as employees, partners, or investors.
The second is that the existing investor has concerns about the intent of the potential new investor (for example, are they simply fishing for market knowledge?) and wants to be there to evaluate that intent and protect the entrepreneur as necessary. This is like having your dad walk you to school each day because you fear that other kids might bully you along the way. It doesn’t work because there will come a day when your dad isn’t able to walk you to school and even on the days that he does he’s going to have to leave you once you get to school. In other words, your investor won’t be there to participate in every fundraising meeting you have and fundraising meetings are just one example of the tens of contexts where you’re going to need to protect yourself. The only solution is to learn to protect yourself on your own.
Using a similar logic, fundraising advisors also shouldn’t participate in your fundraising meetings.
If your initial fundraising meetings are successful, you receive a term sheet, and begin to negotiate it, then investors or fundraising advisors should get involved. Although they don’t know your business as well as you do, they’ve seen and negotiated many more term sheets than you have. So getting their input makes sense once you reach this stage.