What to look for from investors
So what do founders expect from investors in addition to cash? Ideally, the classic answer and probably formy next round, the answer will be that they also need to bring some strategicvalue. So because I work in the real estate space, I’ll look for a leadinvestor who has real estate connections or could provide access to resourcesthat I wouldn't be able to get.
But actually in the early stage, I think actually in every stage the mostimportant thing that I get from my for my investors is the belief in us as afounding team and belief in the model. You really want your investors to rideor die with you. I can't imagine anything worse than having a whole bunch ofinvestors who would lose faith six months or a year into the process and I justconstantly have a backseat driver question your decisions or try and force youin a direction that you don't want to go. For white space. the seed capitalcame out of my own pocket and we got to a certain stage where we were talkingabout expansion and you know, I could have put my hand in my pocket again andfunded the next stage, but I really forced myself to go to the external marketbecause I said I needed test that somebody else believed in it.
Knowing what you are and what you are not
People would say well white space is a prop tech company. Well are youproperty or you a tech company? Are you really bricks and mortar or are youreally fundamentally going to expand like a tech platform? And I'd say I'mgoing to do what fits the needs of our customers and sometimes and I believethat it requires us to have some physical locations that we invest in. It doesn't fit customer needs to be a pureplatform and the issue I ran into in pitching some investors was they werelike, well, we like to invest in technology companies. I said, well, that's nice for you, but that'snot what's going to succeed in the market. So do you want to invest in thething that you sort of philosophically believe in or are you going to invest inthe thing that actually fits the market need? I know I'm going to start thecompany that has the closest fit to what consumers and customers are lookingfor. Therein lies the best value and I believe that's in the long-termstakeholders interest. But if you don't agree then we're not a good fit.
On being profitable sooner rather than later
There was a founder that was talking with me the other day and he's raisingtheir first real round of external funding, he iss torn because he wanted hisbusiness to be more in the growth phase. Right? Let's put everything back intothe business. I want to expand, expand, expand but he also had this instinct inthe back of his head that maybe becoming profitable first was more importantand he wanted to know what investors thought.
Since I made some angel investments before, I told him he should try to getprofitable.
It depends who you are who you are pitching to. If you're pitching to an institutionalVC fund at an A round and maybe they're in it for a long enough time frame, andI've seen enough companies and experienced enough to know and that they'rebetting on a multiple companies and one of them is going to pay for all theother ones and they want all of their companies to have that hockey stickgrowth, right?
But ironically for angel investors, what I told him is that we actually getscared. We are actually frightened very easily and we are actually sometimesmuch more cautious actually than even venture capital investors, even though bythe book we are supposed to be earlier stage and we're supposed to be moreaggressive in taking risk on companies we invest in.
In fact, we actually really like profitable businesses to invest in. One ofthe reasons that we don't like risk and we like profits is because we're oftentimes doing it with our own money. Whereas these VCS and PE funds they go tosleep at night because it's not their money.
Giving employees incentives
I haven't even contemplated ESOP program yet, maybe because we're too earlystage. That would be something for maybe a Series B round. But I do see that some of the staff thatwe've hired and promoted into like those first line managers, I want to providemoney monetary incentives, but an ESOP or a stock option program is way tooabstract for where they're coming from. And so I read one of the bibles ofstartup scaling “Built to Sell” and they talked about establishing just aloyalty bonus pool, you know, something like a third of their salary that youput into a bonus pool and they earn out over time. It's real money and they getit in their hand at the end of three
years. So they can see that they know what it means. It's more tangible.They can understand it versus, you know, at higher level of employee. You cando stock options because they grasp that and they know how to interact withthat.
My core team members like our head of BD who we've hired are very muchmotivated by you know, the big vision. Hewants to be up there ringing the bell when we float. He wants to be part ofthat. And so when we negotiated his package, you know, he pushed hard forshares, that was important to him.