Investor mindset by startup stage
It's easy to assume that investors evaluate every startup at every stage as if they are looking for the next Amazon. That's not the case.
Different things matter for different stages, and this is my simple way of thinking about what investors should be most focused on by startup stage.
Pre-Seed: Investing in the founder(s)
Seed: Investing in the team
Series A: Investing in the traction
Series B: Investing in the revenue
Series C: Investing in the unit economics
Of course, all investors are different. Not all money is "good money." It is essential to pick your investors carefully.
One situation I've been privy to involved a person who was an investor and a board member in a pre-Series A startup.
During a board meeting, this investor strongly recommended that the startup be profitable within 6-8 months.
This pseudo-demand came despite the data and insight pointing to the fact that the company should deprioritize profitability and instead prioritize fundraising to enable a type of growth that would not allow the company to see profitability for 36-48 months.
The investor wanted a 2x return on his original investment, ignoring the potential 15-20x return in 3 years.
Retention at the startup was excellent; customer acquisition was cheap, the marketing tactics were proven and were ready to be replicated to accelerate growth.
Prioritizing profitability (as the investor presented it) would likely inhibit the startup from achieving 3-4x growth over the same 6-8 months.
The investor's appetite didn't align with the CEO's. The investor should’ve been using his funds to buy Microsoft stock, not investing in early-stage startups.
This investor wasn't "in it for the long haul." He was an investor, yes, but in my opinion, he was the wrong investor for the founder and the company at hand. He was not only not "good money"; he was arguably bad money… a distraction occupying a board seat.
Hence, why I like the framework above, pick your investors carefully by ensuring they're focused on the right things at the right stages.
Find investors ready for the journey you want. If you have a vision, whether it is a “fast flip” or want a “napkin to NASDAQ” partner, let investors know from the start.