There’s a wide spectrum of support that an investor can provide a startup. At one extreme, we can provide capital without any interference. At the other extreme, we can effectively serve as core team members, helping with everything from building the team to designing the product to identifying and building out distribution channels to raising future funding to structuring an exit.
However, based on my experiences, there are 4 specific types of support that great startups can benefit from:
- Identifying and helping recruit/transition team members
- Thinking of and helping structure partnerships with other companies
- Preparing for and raising future funding
- Structuring an exit
There are also certain types of support that, if an investor finds themself giving a company, are usually an indication that things aren’t going well:
- Designing and providing feedback on product
- Identifying, building out, and measuring the return of different distribution channels
What’s common across the 4 types of support that great startups can benefit from is that they’re external activities. Specifically, they’re about connecting the startup with external talent, companies, and financing opportunities.
What’s common across the types of support that great startups don’t need is that they’re internal activities. Specifically, they’re activities that require detailed immersion to do well. As such, great startups do it themselves. So if an investor finds themself being requested to or feeling the need to contribute in these areas, that’s often a negative signal.
The corollary to this analysis is that you should invest in startups who either don’t need you, or benefit from your support in external activities. You shouldn’t invest in startups who need you to perform their internal activities.