We recently held a roundtable for early stage founders with CapitalG investor Jill Greenberg and Google Cloud Managing Director Jim Anderson at the recent Google Cloud Startup Summit. The discussion centered around what founders need to consider when raising a growth round. Here are highlights from the conversation, which draw from both Jill’s and Jim’s remarks.
What’s the difference between early stage and growth stage investing?
Obviously the biggest difference here is the stage of the company you are working with. Traditionally — although everything is a bit up in the air with the market today! — an early stage company is still working on finding product market fit, focused on running experiments and hacking to figure out what the right product and processes are.
Growth stage companies have typically figured out product market fit, and are more focused on scaling go-to-market channels, building the company with attractive unit economics, and developing a platform and infrastructure that will enable them to grow quickly and efficiently.
Given this difference, it’s pretty important to find a growth investor who has had experience in the type of scaling motion you’d like your company to go through.
Why wouldn’t you want the same investor from seed to growth?
That’s a great question. It is always helpful to have someone you trust stick with you throughout the entire lifecycle of your company’s journey. That said, it’s also really important to bring on new perspectives and skill sets that complement existing investors as your company grows.
For example, the focus of a seed stage investor and a growth stage investor is very different, and so their areas of expertise are likely to be very different as well. At the seed stage, investors have a tremendous ability to see how markets may unfold, and can help with the 0-to-1 company building aspect of the journey.
Growth stage investors spend more time looking at benchmarks and public markets, and can help with the scaling parts of the journey by saying things like “this company looked like X at that stage.” They are very different skill sets, but both extremely valuable for the company.
What’s a common mistake to avoid with raising growth capital?
Things are moving so fast these days that it’s easy to think all growth capital is the same — just accept money at the highest valuation or where the process moves the fastest. Remember that the growth stage is a really important part of the journey as you prepare for being a public company, and it really matters who you bring on and let join your board.
Make sure it’s a great fit personally and professionally. Building a company is a long journey and you always want the right people by your side.
How can you determine if an investor is a good fit for your business?
The most important thing is that you vibe personally. You are letting this person join one of the most important journeys of your life, so make sure you trust and enjoy spending time with that person, and believe they will push your business forward in all the right ways. The second thing to consider is whether they have the right skill set and complement your existing board well. What do you feel like you need more help on? Who do you feel is an expert in your type of business model, or industry? Finally, you should be selfish in how you work with investors prior to them investing. You can get a sense of what it is like to work with an investor well before any capital event. Here are some things to consider when you have initial conversations with investors:
Have they done the requisite work to understand your business and industry prior to your conversation?
Do they come prepared with ideas for how they could add value, or do they ask what your priorities are so that they can add value before the raise?
Do they show enthusiasm for your business, and follow through on their offers to help you?
Do you feel like you will have a good working relationship?
Any advice on how to approach relationships with investors?
Most importantly, spend the time you need with investors prior to a raise to feel comfortable with bringing them on to your team.
If you have investors you really trust from previous rounds, ask them for two or three people you recommend they speak with. This business is all about people, and you should work with people who make you feel inspired, pushed, and supported every day.
Our thanks to Jill and Jim for leading the conversation.