The investment environment is tilted in favor of startups right now. And that means there’s a high likelihood you’ll be able to raise capital — in fact, it’s as high as it’s ever been before.
On a recent episode of the Startup Success podcast, special guest host Jeff Burkland, Founder & CEO of Burkland, talks with his friend Sid Trivedi, Partner at Foundation Capital, about the partnership between entrepreneurs and investors.
Sid and the team at Foundation Capital have a unique perspective about investing in venture capital. The company is razor-focused on early-stage venture investing, which means they are usually the first or second investor to come aboard at a startup.
“We made that conscious decision because we think it’s really important that if you want to be good at something, you focus very specifically on that,” says Sid. Because of this unique perspective, Sid has some great insight into how investors evaluate early-stage startups.
Getting to Know the Founders
Pre-pandemic, Sid would meet founders in person to get to know who they are. But since the pandemic ground in-person meetings to a halt, Sid has turned to other means.
Citing one recent example, he says, “The way that I did it, from the time that I met the founders, to the time that I gave them a term sheet (which was roughly three weeks), I spoke to them every single day.”
That really allowed him to get to know the founders on a personal level, and crucially, to learn what motivates them. It was a viable alternative to in-person meetings.
That being said, Sid believes that venture capital will be one of the first industries to return back to work in the physical office.
“This is early-stage venture capital,” he says. “The experience of meeting in person is important.”
“If there are not areas for improvement or weaknesses that are highlighted, then I’m not doing my job in terms of getting the right references.”
— Sid Trivedi
Additionally, Sid always seeks out founder references before making an investment. It gives him a 360-degree view of who the founders are as people.
The main goal: identifying weaknesses.
It may seem like revealing a weakness to an investor could be a death knell for your chances at funding, but the opposite is actually the case.
“If I’m only hearing overwhelmingly positive information, that’s an issue,” Sid says.
Because he believes it’s important to know exactly what he’s investing in, warts and all. That includes gaining an awareness of any weaknesses that may need to be addressed.
And if he believes in the startup, he will help the founder strengthen that weakness.
For example, it could be that the founder is excellent at sales but lacks technical product knowledge. In that case, Sid says, he would help find someone they could add to the team to fill that skill gap.
“We want founders to be opinionated. If they’re not opinionated, then that’s a major issue.”
— Sid Trivedi
Another quality he loves to see in startups is an opinionated founder. In the rough and tumble life of an entrepreneur, it’s an important trait.
“Most of the time, they’re trying something that’s completely different to what the industry thinks is normal, or what customers think is normal, or what the current market thinks is normal, or what other investors think is normal,” Sid says.
“Ultimately, we don’t want them to bend at the first negative comment. You want them to have a point of view.”
Bay Area Versus the Rest of the Country
Despite the rise of remote, Sid still thinks there’s a distinct advantage for a startup located in the Bay Area.
“Most of the capital is still based out there,” he says.
In addition, there’s a ready-made pool of top-notch talent residing there too.
It’s for those reasons that he believes the Bay Area will continue to be the mecca for startups and for the creation of new companies.
The remote world, however, has expanded the reach of VC money. Over the past 12 months, Sid’s own firm had significantly more investments outside of the Bay Area than in prior years.
Advice for Startups Evaluating Investor Fit
“If you are a founder who has come up with a decent idea with an interesting background, the likelihood that you’ll be able to raise capital is quite high right now.”
— Sid Trivedi
According to Sid, capital is cheap right now. That’s owed to a number of factors.
Low interest rates and the extra money global governments are pumping into their economy has driven consumer demand up. And when consumer demand goes up, enterprise demand follows.
Because of this environment, investors are actively seeking ways to generate returns and venture capital is a very attractive asset class to try to do that in.
What does this mean for startups?
If you’re a founder with a great idea, you have a high likelihood your company will get funding.
So since you have more options for funding, you should be looking at investment partners with a critical eye.
The big question you should ask: What additional value will a potential investor be able to offer you?
“I tell founders all the time to think of your investors, particularly your early-stage investors, as effectively a co-founder,” says Sid. “And it is very important for us that our founders feel that we are bringing something else to the table outside of the capital that we bring in.”
That value could manifest in the form of access to customers, the hiring of key executives, or market expertise.
There’s incredible value inherent in a good investor fit. It’s a value that can drive positive outcomes for both parties deep into the future.