|  Updated: 

The Notebook: Dear founders, you can be picky about your investors too

By:

Add as a preferred source on Google
EALING - JUNE 04: Crisis Volunteer Rachael De Bose sits in the bedroom where she usually logs on for her shifts for the crisis text service Shout 85258, on June 04, 2020 in Ealing, United Kingdom. After a friend took his own life last year, Rachael realised the critical importance of anonymous support for those who feel they cannot discuss their mental health problems with friends and family. Volunteering for around a year, Rachael usually does two shifts a week for a few hours, but during the lockdown period, the increase in demand has led her to log on every other day to ease the pressure. Shout is the UK's first 24/7 crisis text line for everyone, and is free, confidential and anonymous to text. Powered by a team of Crisis Volunteers, Shout uses the anonymised data collated to give the service unique insights into mental health trends to help improve people’s lives. In the weeks before lockdown was announced on March 23rd, Shout was typically handling around 750 conversations a day. This has been steadily growing, often seeing more than 1,000 conversations a day. Prince William, the Duke of Cambridge, recently revealed that he has been one such volunteer anonymously counseling people during the Covid-19 lockdown, after having been trained by the charity. The Cambridges and the Duke and Duchess of Sussex helped launch the Shout 85258 service last year, investing £3 million via their Royal Foundation. (Photo by Leon Neal/Getty Images)

Where the City’s movers and shakers have their say. Today, Rupa Popat, founder and managing partner at Araya Ventures, takes the notebook pen, with a few lessons on what makes a good investor

Where did all the value go? 

We need to pay attention to the relationships between founders and investors – and realise that this extends far beyond a cheque. 

There’s room to improve: a recent survey showed that 71 per cent of startup founders feel like their relationships with their investors have become worse in the last year and a recent Forward More than Money report revealed that while 92 per cent of venture capitalists (VCs) believe they are value-add investors, only 61 per cent of founders agree. 

As a former founder and investor, this mismatch of expectations and experiences is no surprise. In early-stage venture capital, the term “value-add” is often thrown around, yet its true meaning remains ambiguous, and elusive. 

With experience on both sides of the table, it’s something that I take seriously. I recently completed the first close of our £20m venture capital fund at Arāya Ventures, and it was important to try to be a ‘value-add investor’ on the cap table. 

But being a ‘value-add investor’ is not a one-size-fits-all proposition. For instance, in one of my pre-seed investments, I focused heavily on fundraising strategy and introduced the founder to lead investors for both Seed and Series A rounds. In contrast, other founders have worked with their lead investor on that but they’ve wanted customer and talent introductions from me, for example. This demonstrates the need for flexibility and a tailored approach to adding value.

Founders can also play a role in bridging this support gap. Good investor updates are an under-utilised resource. Give investors clear requests which enable us to leverage our networks and resources, whether that’s introductions to potential customers, talent or assistance with strategy, operations and growth plans.

To founders, I would say this: just as we conduct due diligence on you, you should do the same with us. Ask potential investors how they plan to add value, how they work with portfolio companies and whether their approach aligns with your needs. This mutual understanding is key to building a productive and supportive relationship.

Immigration fuels the startup ecosystem

I was born to immigrant parents who made the trip to the UK from Uganda in 1971 to settle here and I’m now an investor in a number of foreign-born founders, so I’ve witnessed first hand how immigrant communities build businesses from the ground up.

Last week, the Entrepreneurs Network released a report which revealed that over a third (39 per cent) of the UK’s top 100 fastest-growing companies have a founder born outside of Britain, despite immigrants making up less than 15 per cent of the total UK population.

In the US, 55 per cent of all unicorns are created by immigrant founders.

This success is down to a number of factors – starting with mindset. Many immigrants came here with nothing, leaving everything behind to create financial stability and a life for themselves and future generations. These complementary traits for entrepreneurship – resilience, grit and adaptability – combined with market forces and an international mindset are a recipe for success.

Through Araya Ventures, ⁠I believe investing in all types of founders drives better results and I see this trend continuing, with the fastest growth businesses in tech coming from the next generation of diverse founders.

A recommendation

“Every moment in business happens only once” – this idea, from Paypal co-founder Peter Thiel, should excite any entrepreneur and investor. 

Having built a startup before founding Araya Ventures, one book I have found myself returning to time and time again is “Zero to One” by Thiel. 

As both a founder and investor, his approach for innovative thinking for starting a business is as relevant today as it was ten years ago and provides the blueprint for the next wave of entrepreneurs to think about how to build the next generation of innovative companies.