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Hello everyone,

Happy Born Day

Today is my birthday. I am thankful to God the Almighty that I can celebrate it with my family. In these trying times, being able to be with your loved ones is the simple pleasure in life that’s priceless.

Today is also a special birthday celebration of its kind. Earlier in the day, I got an Astra Zeneca birthday jab as a present for myself 💉. 

So far the effect has been mild. I still managed to blow the candles on my birthday cake after dinner.

#cucukMYAZ

Take any vaccines that’s available to you. A protection of some kind is better than none. Stay safe, stay healthy.

On to today’s post.

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In a competitive fundraising environment where there is a lot of capital chasing few good investment opportunities, money becomes a commodity. Investors in this scenario will often pitch that they can provide additional value-add to startups beyond money, as an edge against other investors.

Value-add can be highly subjective. Is providing advice/guidance on logo, colors and letterhead considered value-add? Or helping the company choose its mascot bring additional value?

In my experience, there generally four areas of value-add that would really benefit the startups: 1) VC (Venture Capital) brand; 2) distribution; 3) hiring and 4) all things financials.

1. VC brand

I must admit that this a subjective element. Having a top-tier VC fund or superstar Partner on a startup’s cap table is some kind of a stamp of approval. It provides positive signaling to competitors, potential clients and partners that the company is legit.

It might also help the startup in recruiting talents.  

That said, there is no guarantee that having GGV, Accel or Tiger Global on a startup's cap table will ensure success, although any leverage it can pull to get from zero to one will be immensely helpful to any fledgling startups.

2. Distribution

No matter how good the quality of the products/services a startup offers, there is no point if the company can’t get it to market to the right customers. A startup is always at a disadvantage given that it has zero existing customer base to tap into at the earlier stage.

A good VC would be able to guide the founding team on the best approach to get the product/services to the intended audience effectively, either organically or through paid acquisition.

The investor can also reach out to its network to make intros to potential corporate clients in the case of a B2B (business to business) startup. Alternatively, the VC can point a B2C (business to consumer) startup to a potential partner with a large audience for the company to promote its product.

The faster the startup can distribute its products/services, the faster it can book revenues. The faster the revenues scale, the more attractive it will become for future fundraising, acquisition or exit.

3. Hiring

Every startup (in fact companies of all sizes) needs high quality talents to build and grow the company. This is where investors can provide value-add by helping to source high calibre candidates in various roles that would help the company grow. One great senior hire - VP of Engineering, VP of Product or VP of Finance - would be super accretive to a fast-growing startup. 

At the very least, investors should be roped in to interview senior hires to provide an additional filter in the hiring process.

4. All Things Financials

In the day-to-day operation of a startup, there will be a lot of transactions involving money in order to operate the business. There’s payment to SaaS software providers, cloud hosting bills, buying the latest MacBook Air for staff and payroll for employees. And of course there are revenues from selling the products and/or services to customers.

Investors should provide guidance for startups to maintain a tight record of all the cash inflows and outflows. This is crucial to avoid any unexpected surprises in terms of cash crunch and ensure the team has an adequate capital runway to operate the company.

Beyond keeping an eagle eye on the operating cash flows, a VC should be ready to lend a helping hand when the time comes for the startup to raise additional funding. The VC can help in ensuring that the relevant growth metrics are met, reviewing the pitch deck and connecting the startup to a pool of potential investors for the next fundraising stage.

Choose Your Investors Wisely

A young startup generally doesn’t have a lot of resources - time, people and money - at its disposal in its quest to develop a disruptive product for the market. It needs to channel all of these resources to ensure a focused execution. It needs to tune out any noise that may distract its focus.

And this includes investors who vaguely claim to provide value-add by sharing advice or guidance that may not be relevant to the startup. Worse, it takes away founders’ valuable time that could be channeled toward building the company.

I hope that everyone, especially startups founders, have a better clarity on what investor value-add means. If the term sounds highly subjective before this, I surely hope that everyone can now discuss the term in a more objective manner. Armed with this knowledge, I wish that founders can properly evaluate investors who can truly add value beyond capital as partners in their quest to become the next decacorns that change the world.

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Extra Readings

Learn the skills to improve your thinking

Facebook can’t stop copying another startup. This time it is copying Nextdoor

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Cheerio,

Reez Nordin

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