WHAT DOES AN INVESTOR BRING BESIDES MONEY?

Accelerate your business with these expert tips "What does an investor bring to a startup, besides money? Analyse and discover this TIP!

​​In addition to money, an investor can bring a lot of value to a start-up in different areas.

Some of the most common contributions are

1. Experience: Many investors have extensive experience in the sector or market in which the start-up operates, and can help the company avoid mistakes and identify opportunities.
2. Networking: investors often have a wide network of contacts that can be valuable for the start-up, e.g. to find customers, suppliers, partners, etc.
3. Technical expertise: some investors have specialised expertise that can be of great help to the startup, for example in areas such as marketing, technology, finance, etc.
4. Strategic advice: Investors can help the company to define its strategy and make important decisions, especially in times of difficulty or uncertainty.

In short, investors can bring a lot of value to a start-up, beyond the money they invest, and it is important that the company is able to make the best use of it.

Differentiate the role, role and functions of the entrepreneur and the investor.

I recommend this TIP (+)

The role, role and functions of the entrepreneur and the investor are different but complementary. The entrepreneur is the person or group of people who have the original idea and vision to create a new company. He or she is the leader who takes the entrepreneurial risk and leads the company in its growth and development. On the other hand, an investor is a person or entity that invests in a company with the objective of obtaining a return. The investor This can be a business angel, a venture capital fund or a financial institution. The investor provides capital and, often also brings knowledge and experience in the sector or in business management. The entrepreneur and the investor work together to make the business a success. The entrepreneur focuses on the strategy execution and business development, while the investor provides financial support and strategic advice. It is important that both parties, maintain good communication and collaboration to ensure the long-term success of the company.

Expectations of the entrepreneur in terms of investor input

An investor has no need to invest in a specific project. He doesn't need to, but he is very interested, because after all, that is his business, that is what he makes his living from. In order to actually invest in one, he has to see something in it that convinces him that it is going to give him a profit and compensate him. Often, the problem is that the entrepreneur is not putting himself in the shoes of the investor, and vice versa. He has to realise that he has to give something in return. Above all, a reason for investment, a balance between risk and return. In fact, if you think about how asymmetric the relationship is and how different the respective objectives of investors and entrepreneurs are, you can conclude that it is difficult for them to reach an agreement.

So to speak, they are two absolutely different species of animals, not in direct competition, but with very different visions of what the world is and what a company is. As a rule, entrepreneurs are over-optimistic and over-confident and obsessed with "controlling everything". On the contrary, investors are typically more suspicious, more pessimistic and less involved. Both should know that 80 percent of projects fail, but while the entrepreneur does not care about this because it is a problem of "the other eight that fail", the investor wants to discover and manage the risks and returns of all his projects. Or, do put it another way, the entrepreneur plays against the statistics, while the investor seeks always to play with the statistics in his favour. The entrepreneur is always chasing the most favourable scenario, and doing everything possible to make it happen, while the investor wants to consider all scenarios and cover as much of the risks as possible.

The hard part is that they end up understanding each other!!! For investment in a project to really happen, both have to learn how the other works, what their motivations and objectives are.

The words of investor J.L. Cabiedes "...Sometimes an entrepreneur comes to you and tells you that he is looking for more than just money, that he is looking for an investor who can provide him with knowledge and contacts. I have doubts in such cases: If the investor puts in his money, his knowledge and his contacts, then what does the entrepreneur put in? Many of us investors think that if I bear all the risk and provide the fundamental elements, it might make more sense for me to set up the business and hire him on a salaried basis. The entrepreneur must understand that it is not the role of the business angel to make projects viable. The business has to be complete in itself, and it has to be viable, feasible and investable without the help of the investor. If not, it is not a good business. Some people have even said to me: "You don't do venture capital because, in reality, you don't take risks". I counter this by replying that, in reality, he is the one who doesn't understand, who thinks that venture capital means that he takes my capital and in exchange gives me his risk. This is not how venture capital works. Every investor prefers to invest in start-ups where the entrepreneurs also have something at stake, even if it is not always their own money.

Risk is neither good for the investor nor for the entrepreneur and should be avoided as much as possible. Only if it is necessary and you are paid a lot for it are you willing to take it. I don't know anyone who likes risk for risk's sake. At least nobody in their right mind. That's why it's very important that, from the very beginning, each one knows exactly what role the business angel is going to play in the company. Roles should not be exchanged, or even attempted. The entrepreneur must always be the entrepreneur, since the company is his or her own. If the investor wants to be too involved, it may not be the investor that the company needs. 

Few entrepreneurs want or need the investor to come every afternoon to run the shop; that is what he is there for. The only thing he needs, and that is no small thing, is a person who will put money into it. To paraphrase Groucho, I would conclude that "I will never invest in a project that needs me as a partner". It has to be as if I didn't exist. If in the end the project is viable thanks to my contacts, then that's why I do it". In my view, the relationship between an entrepreneur and an investor should resemble that of a Formula 1 team.

The driver is the entrepreneur and the car is his company, while the investor is in the pits. The driver is the one who drives the prototype, the one who chooses the line of the corners and the one who puts more or less pressure on the accelerator; he is the one who puts his life on the line in the race and, therefore, the one who has to know how to drive the car better than anyone else. There is nothing more dangerous than the investor who thinks he is a better driver than anyone else and keeps telling the driver how to drive, or worse still, wants to take the steering wheel out of the driver's hands. The role of the inverter is to watch a series of screens full of figures and graphs from the pit lane, analyse all this data and decide whether the car should pit. With the fuel hose in his hand, he has to decide whether or not to put more fuel in the car, or whether to change the tyres... Meanwhile, the driver only has to worry about doing fast laps, but with the certainty that he will never run out of fuel. These, in my view, are the respective roles of the investor and the entrepreneur.

Three hundred and sixty-four days a year the entrepreneur does exactly what he wants in his company. It is impossible to control. So impossible that I as an investor don't even try. In my model of partnership agreement (+) I do not include any clause aimed at controlling or supervising the start-up, neither in day-to-day management issues, nor in strategy, nor in anything else. The business is his and he has to manage it. At least, as I say, three hundred and sixty-four days a year, because there is one day when, as an investor, I have the upper hand: when the entrepreneur comes to get more money. If the company is doing badly, he will come for more money, and if the company is doing well, he will also come for more, in this case because growth is expensive. The investor also has a lot of control over the situation at the time of exit, but in between he is not, and in my opinion should not be, involved in the day-to-day running of the business".

Contribution according to type of investor

However, there are many types of investors. There are some who get very involved with the entrepreneurs and practically pull the cart alongside them. There are even those who pursue that old chimera that it is the cart that pulls the oxen. It is in certain danger of becoming not only as an investor, but also as a mentor or sponsor (+). If he wants it or accepts it, it is his right and his decision, but it is not the professional way to organise things. Sometimes you get to the point of the well-intentioned investor who comes by the startup's headquarters every Friday, sits down in a chair, sighs and asks, protected by an innocent smile: "Well, how are we doing this week? 

There are other investors who really do bring something to the company, even if only imparting timely advice based on their wider experience or knowledge of certain areas of the specific business or of business in general. But, in short, I will never tire of repeating that the business is run by the entrepreneurial team and it is the entrepreneurial team that has to run it. However, it is important that the investor has been on many boards, has known many projects and many start-ups, has entered into many investments, has had many partners and has made many divestments, because that way it will be able to bring greater peace of mind than someone who, as is usually the case for the entrepreneur, is going through it for the first time.

Bipolar inverter

Avoid the amateur investor with almost bipolar behaviour who one day is totally "in love" with the entrepreneur - "he's a great guy, he's invaluable" - but suddenly, in the first month when sales are not in line with the business plan, says "this guy is cheating me, I want to get my money; where's my money? I think it is important that there is always someone who has perspective and keeps calm. In any case, as things change and the unexpected happens very often, it is good that the partnership pact stipulates as many situations as possible".