Anything that serves to help a startup grow and succeed. Varies based on each investor’s unique connections, skills, and expertise.
Today, I want to talk about how to provide value-add to startups.
Value-add is the crème de la crème of the benefits that investors provide startups. Aside from capital investment, there is nothing more important than the value-add you can provide your portfolio company.
A startup in which you’ve made an investment.
In fact, there is so much disagreement on the term that several prominent Silicon Valley entrepreneurs and investors have concluded that there is no such thing as “value-add.” Some have even claimed that the entire idea is a fallacy.
They couldn’t be more wrong.
Why Value-Add Is Critical for StartupsValue-add is a real concept and when properly provided can completely change the trajectory of a company’s prospects.
Before we go into what value-add is, let’s examine why it has such a bad rep. You see, most people provide value-add in a highly egocentric manner. Investors provide value-add based on what they think would be best for the entrepreneur, and in a way that makes them feel good about the value-add, versus what is actually good for the company.
This is problematic for two reasons:
1) The average investor spends 1-2 hours a month on a given startup, while the average CEO spends 250 hours in that same time frame – often after spending a decade or more in the field. In other words, it is almost impossible for an outsider to understand a CEO’s business better than the CEO her/himself.
2) Even in the highly unlikely chance that you know what is best for the CEO, you’re not likely to convince her/him by having a battle of egos. The CEO is ultimately the judge, jury, and executioner.
The solution is asking the CEO outright about how s/he wants to receive value-add. The best way to do this is to say, “What one or two ways can I provide help to [startup name] that would create massive value for the company?”
The best way to influence the CEO over the long term is not by shouting, but by listening.
The more rapport you create with the CEO by providing exactly what s/he is looking for (without judgment or argument), the more room there will be for you to provide value-add in the way that you think is most valuable.
As the saying goes, “God gave us two ears and one mouth.” Use those ears!
Learning how to be a great investor takes time and practice… But when in doubt, it’s often better to do nothing at all. That’s because all too often, an attempt to be helpful without asking the CEO first does nothing but waste their time.
Frustrate enough CEOs, and you’ll find that your deal flow dries up pretty quickly. That’s why the most important thing is to know what not to do as an angel investor.
I’ll be back next time to tell you the top 3 deal flow-killing mistakes you need to avoid to be successful.