Here are some high-level perspectives on the framework to choose a financial partner whether Strategic or Financial.
The Founders must try and define the role and expectation from the Investors and the outcomes they intend to deliver to the Investors. Given that the Investment is like a marriage amongst two institutions, there must be a “Dilse” Connect. Founders may need to spend a fair amount of time in researching about the culture, chemistry and investment process of the investor to align aspirations and outcomes with Investor for a wonderful relationship.
The Framework could be under two buckets:
- Alignment of Vision, Values, Culture and value add
- Hunger and time to close
Here is an illustrative framework which may help the founders close faster to get the highest Returns on Time Invested (ROTI).
There could be separate analysis for Strategic and Financial Investor Partners and each of these attributes could be rated on a scale of 0-5 to bring in some objectivity in decision process.
Alignment of vision, values, culture and value add
- Understanding of Partner’s DNA and their alignment of thinking with founders and the business story.
- Are they long term and patient investors
- Their track record in the start up space and feedback from Eco-System
- Value add in helping the founders create scale and value creation
- Assessment of the partner’s representative (if any) and her chemistry with the founder and status in the firm
- Commitment to invest in future rounds and help in fund raise
Hunger and time to close
- The level of Founders engagement and interaction with decision makers
- How deep is the Investor Partner’s understanding of the Business and Domain
- Is the interest from Investor inbound
- Any conditionalities which restricts the freedom of Founders to run the business
- Founder’s gut on how close or hungry are they for partnering with them
- Understanding of the decision-making process and how quickly can they make the decision
- Make as detailed a term sheet as possible to avoid any nuances while detailing shareholders agreement
This is an illustrative framework, Founders must have the data room ready to avoid any delays from their side.
In conclusion, even if there is a competitive process, the intent of founder must be to ensure a Win-Win by leaving something on the table for Investors.
February 2020
