Below is the “Tip of the Week” transcript from the Podcast Episode 16: Venture in the Media (Erin Griffith)
Throughout the conversation, this theme of finding startups early kept coming up. While there are many angels and early-stage investors that tend to follow the herd or they hear about the hottest startups and try and participate in the investment round, this can often have an adverse effect on a deal. For one, the valuation will often inflate. Erin talked about the great number of investors at the early-stage and how this may be pushing valuations up. While on the surface, this appears as a win for the startup and loss to the investor, but it doesn’t always play out that way. Once a higher valuation is set, the bar is raised and the milestones are more aggressive. If the startup experiences challenges, this can cause difficulty in raising the next round.
So we had talked today about how people like Charlie O’Donnell, who recommended Erin for this interview back in Episode 6, tries to meet startup founders before they even have a startup. Erin also gave an overview of the article that she wrote about Mattermark and Bloomberg Beta’s effort to identify potential founders before they have embarked on their startup journey. And she, herself, will use her network of practitioners, industry players and founders to try and identify early startups that are still very much under the radar. The reason I’m calling attention to this is b/c there seems to be a theme amongst well-respected, seed-focused professionals that they want to plug-in and find out about these great new startups before the rest of the world does. This doesn’t mean that each of the investors are making bets at the idea stage… rather it means they are meeting with these companies before they have decided to do a formal fundraise. This is an important distinction b/c a startup could be at… the idea stage, have built a product, have achieved product-market fit, or maybe they have significant traction in a vertical before ever considering a fundraise.
The message isn’t to invest earlier, it’s to meet startups earlier. Assuming you’re a fair and honest investor with sound knowledge and network, it’s a great opportunity to get some capital in and help keep the startup focused on growing the business instead of the poorly-structured, perpetual fundraise.