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How do I connect with financial partners who will invest in my long-term mission?

Ask the Fixer: There is a big difference between raising money and raising the right money. Three experts share sage advice on the best ways to align with financial partners for the long term.

While traditional business investors focus mainly—even solely—on generating financial returns, impact investors want more for their money. They seek out companies that strive to make social and environmental impacts along with monetary profits, the cornerstones of many businesses in the natural products space.

If sustainability, social responsibility and creating a better world are baked into your mission, you want to work with impact investors who share your values and believe in your specific goals. How do you find them? Three Fixers give you the lowdown.

Family office

Investors and capital owners are waking up to the reality that not only is it important to support mission-driven businesses from an ethical perspective; it is also imperative to do so from a market perspective. Consumers, employees, vendors and other stakeholders are all looking for values alignment at the checkout counter, in the office and in the board room. Because of this emerging market imperative, connecting with financial partners willing to invest in mission-driven companies is becoming easier and easier.  

Finding an investor interested in “impact” is simple—but finding an investor whose vision of impact aligns with yours can be a complex process. It is never too early to start networking and being on the lookout for the right people. Use your board and peers as resources to explore investor track records, and be sure to dedicate the time during the term-sheet negotiation to also build alignment on expectations around returns, time frame and mission. 

Finally, finding values alignment isn’t over once a deal is signed. Rather, it must be cultivated intentionally over time. Maintaining alignment requires clear, continual communication along with transparency and commitment to partnership. With the right partnerships in place and the right energy put into cultivating them, you can focus your energy on achieving your business and mission goals.

 —Caroline MacGill, managing director of Armonia, an investor in companies, projects and funds that champion regenerative practices in agriculture, finance and business

Private equity

First and foremost, I recommend that early-stage entrepreneurs really get to know potential investors and partners far ahead of any fundraising event. Sometimes entrepreneurs are reluctant to do this because either they feel unready to have those conversations or they sense that by taking a meeting, they are somehow committing to an investment or information exchange, when in reality, they are not.

Many investment groups are good at taking the time to get to know founders and entrepreneurs, which is important because no one wants to get into a shotgun-wedding-type situation. These can be some of the most important partnerships you’ll have in your life outside of your marriage or other very close personal ties.

I also think founders and entrepreneurs should network with other founders and entrepreneurs. That’s why Esca Bona–type events are so great. Also, at Expo East or West, take the time to talk to other founders who’ve already been through or are currently going through the same thing. Get a sense of what people are hearing about this or that investment group. Ultimately, it’s about taking time to vet investors.

If you are at the stage of being in active dialogue with potential investors, ask them to share how they worked with a particular prior investment and describe what went right and wrong. Learn how they demonstrated their commitment to that company’s mission and provided value beyond just financial support. Then ask for multiple references. Be proactive about saying, “you haven’t really talked about this particular investment yet, but I’d like to chat with that company founder to understand how it went.” If they say they are not willing to share that information, ask why. There may be good reasons why—personal sensitivities, a legal issue—but you always want to ask.

  —Bill Shen, managing partner at Encore Consumer Capital, a private equity firm focused on natural, organic and sustainable consumer brands

Private venture

All money is not equal, and the benefits that come with investors’ money can vary widely. So when picking investors, first and foremost understand what expertise they bring to the table. If you are entering the food space, you shouldn’t take the first dollar from someone who makes apps for iPhones.

A lot of young entrepreneurs think all they need is money and once they get it, they’ll know what to do with it. But money is secondary to expertise, which is the real catalyst for your business.

When looking for impact investors, make sure you understand their mandate so you know you are looking at the right universe. For instance, don’t come to New Crop Capital with a vertical farm when vertical farms are clearly not what we do. Our mandate is replacing animal proteins. Also, most impact investors don’t need to be educated on the space they operate within. I don’t want to look at a deck explaining at why animal agriculture is bad for the world—I’m already sold, so you don’t need to spend more than one second on that. You’ve gotten the meeting with me already—that’s the gatekeeper—now tell how you’ll run a great company.

Also make sure you’re a good fit by size. Some investors won’t write checks for less than $5 million while others won’t write checks for more than $500,000.

Another thing to consider is, if this is a firm with five people, who will be your actual point of contact? That’s who you are “dating” and will be building trust and a personal relationship with. It is literally easier to get a divorce than get rid of an investor. Look at what the next 10 years with this person would be like, not just the next funding round, because there is a good chance that investor will still be there.

Finally, know investors’ expectations of you. Maybe when you’re raising for a $30 million round, someone will be willing to just write a check for $4 million. But in the $2 million round, every single investor will have expectations, and they all need to be taken care of.

—Chris Kerr, partner at New Crop Capital, a private venture fund that invests in companies developing meat, dairy, eggs and seafood with plant-based ingredients or through cellular agriculture

 

Join the Funding Forum at Natural Products Expo East 2018 to learn about new funding vehicles, unpack the benefits of impact investment and celebrate innovative ideas for funding the future. Expert panels and standout inspiring stories will fill a two-and-a-half-hour, not-to-miss funding masterclass.

When: Sept. 14, 2018

Where: Hilton, Key Ballroom 11/12

*requires a Super Pass

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