What Really Matters in Choosing an Investor

Squadra is a team of real people. We’re investors, we’re operators, we’re entrepreneurs ourselves. We’ve experienced the good, the great, the scary, the boring. We know what right looks like, what wrong looks like, and we know when something’s not yet ripe for judgement. And it’s made us have a really strong opinion on what a solid, trustworthy, helpful investor should be for an early-stage company, and how founders ought to weigh specific factors in choosing a lead investor.

When asked what really matters in evaluating term sheets and picking the right lead investor, you’ll hear people debate the importance of the valuation versus the terms of a deal — a lot of smart people will say the terms are more important than the valuation, and a lot of smart people will say the valuation is more important than the terms. I think they’re both missing something fundamental.

For me, when I look back over the last 20 years of my life and think about all of the businesses and teams I’ve been a part of, either on the management side, or on the investor side, the magical ingredient wasn’t either the valuation or the terms of the deal — it was the relationship between the investor and the management team.

In my mind, great relationships start with a shared common vision as well as clear expectations for what each entity’s role is in helping achieve that vision. We call this alignment. Great relationships also imply the right cadence and rhythm of interaction, solid communication, efficient decision making, and an ability to work through problems effectively together. Put simply, a great relationship truly exemplifies the adage that 1+1 could equal 3 — that the sum is greater than the combination of the parts. In the VC world, this ought to translate to an accelerated, amplified, less bumpy and more enjoyable journey to the next level of business maturity.

When a company takes venture capital, there are three teams at the table — the management team, the investor team, and the combined team. When that joint team comes together and the founders and the investors have a truly great relationship — magic happens.

For Squadra, when we get to work with a team, we don’t just write a term sheet. We develop and agree on a joint strategic plan prior to closing the investment that will take us from where we are today to where we want to go over the next 18–24 months. This means that we’re going to be there for the hard decisions. We’re going to be there helping set the founders up for success as they define roles, pushing hard to make an investment on executive level hires even when it takes on financial risk, jumping in to build out a values framework to improve team dynamics, having a strong opinion on hiring, firing, promoting, demoting, and everything else that defines a culture for a team ready to evolve. It also absolutely means doing our part to add value and grow the company. Activating every part of our network to grow the business, to make key introductions, and eventually set the company up for the next round of financing.

We want to attract the companies that want that type of relationship for the right reasons. If a founder is looking for passive capital, and feels that they don’t have the time to spend with us or want a weekly level of involvement — we’d much rather lose that deal early than figure it out at a later date.

But when a management team realizes that they really want a high-touch, high-value partner to grind with over the course of months and years, we double down on that relationship, we get invested and figure out what we can do to make that magic happen.

Guy Filippelli

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