Up and Running Blog

Q&A: Seeking Investors, Fill Out the Team

by Tim Berry on July 16, 2009

Today I want to answer another question from email, on another subject that comes up a lot. Here’s the question, as I received it:

I’ve read many times how investors would rather invest in a quality “A” team with a “B” level product than with a “B” team and an “A” product.  According to most, I have what would be coined as an “A” product and business model. However I only have me. I am looking to apply for formal Angel investment and the team part is an integral part. I am listing that I do in fact want to find a CEO who can run the company. I am listing CEDO (Commission for Economic Development) as a team of advisors. I am listing legal as on retainer. Please share with me what I should do at this point to make the team viable in the eyes of the angel investors.

My answer:

Fill in the team first.

Find that CEO, and let him or her help you find somebody to run either the marketing or the product development, whichever of those two functions you’re not going to do. Look for somebody who’s been down the road, done a startup, made it successful, and sold it. And while you’re looking, keep an eye out for a finance/admin person as well.

What you’re looking for most is experience. Credentials are nice too, but in a pinch, experience trumps credentials, and if you possible can, get both.

Compatibility is a big deal too. You’re going to want people you can work with, who share the same values, who believe in what your company is going to do. Compatibility doesn’t mean sameness, either; same values maybe, but diversity broadens a company. Look for people who have skills and experience that you don’t. Fill gaps.

I assume what you’re thinking is that the investors can help you fill in the team, and that having people they know and trust on the team might seem to be an advantage. But the problem with that idea is that the team is so much of what they’re investing in that it’s like trying to sell a car without tires or an engine.

Investors don’t want to do it themselves. They want you to do it. That’s where the value comes.

Core problem: valuation. Divide how much money you want by how much of your company you’re offering, and that’s valuation. So for example if you want $500K for 33 percent of your company, you’re valuing your company at $1.5 million. Not having a management team really kills your valuation.

(Illustration: istockphoto.com. The point? an individual playing a team game.)

Tagged as: angel investment, founder stock, management team, valuation

About the author: Tim Berry is founder of Palo Alto Software and Bplans.com. Follow him on twitter @timberry. More »

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  • Dillon

    Hi Tim,

    I am working on a business plan for an espresso bar I’ve wanted to open for some time now. I am young and ambitious and have no money of my own to invest. I have 6+ years experience working at some of the most reputable, very high-grossing coffee bars in the Pacific Northwest and New York City. So, of course, I’m looking to make my experience stand out in my business plan — do I need more of a management team than myself? Or, more specifically, will an investor want to see more of a management team given the nature of the business?

    Dillon

    • http://timberry.bplans.com Tim Berry

      Dillon, realistically, a coffee bar doesn’t offer arms-length investors much to interest them. They put a few hundred thousand into that coffee bar and how do they get that out, doubled or tripled, in five years? Sure, Starbucks was sensational, but Starbucks already happened. You need to think about more mundane financing, maybe SBA loans, partners, people who would want to own and operate the business on the long term. This one isn’t about your business plan, really, it’s about your business. Owners and operators invest in coffee bars, investors don’t.

      What’s really helpful is your on-the-ground experience actually working in one of these places. That does a whole lot for reducing the risk. But it’s probably not. I had a student, David Beach, who wanted to be a coffee roaster. So after graduated he worked in a coffee roaster’s business for a few years and eventually, with the help of one financial partner who was way more partner than outside investor, and who’d been a friend for years, opened his own place. That place is now several places, Backporch Coffee in Bend, OR. It’s doing very well. What made him successful was the combination of his own smarts, sticking to it, a good marriage that meant a lot of help from his wife, and a long-term friendship with one person who wanted to be part owner for the long term, not just get a good return on investment.

      Tim

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