To be known as a founder-friendly investor, one must be an active and enabling partner to founders, with an ultimate goal of maximizing success.
What Is the Definition of a Founder-friendly Investor?
From Adweek to LinkedIn – founder friendly appears to be a common feature when describing today’s investors. Initially, the definition of this type of investor would seem straight forward, with a common thread of supporting founders or entrepreneurs financially. However, those who only provide capital are performing passive investing. While it may be a prevalent approach, it also does the founder a disservice by stopping short of engaging on day-to-day operational issues. Babcoke explains that these investors are more “passive players on the sidelines.” They have taken on the role akin to a bank rather than an active, operational partner.
Moreover, many investors believe they are behaving “friendly” by acquiescing to the founders’ suggestions. They support all of the founders’ ideas with a checkbook in hand. This behavior could harm the company by not providing the founder with the necessary guidance.
Sumeru Equity Partners is a great example of what it means to be an active founder-friendly investor. According to Sumeru Managing Director Jason Babcoke, this means that they spend time helping founders build companies.
“We call ourselves investors, but, quite frankly, we spend most of our time working with founders on helping scale companies,” said Babcoke. During the “What It Means to Be a Founder-Friendly Investor With Jason Babcoke” episode, Babcoke explain the importance of redefining the role of a founder-friendly investor as active versus a passive participant.
According to Babcoke, we should be adjusting the term altogether: “We would argue the true ‘founder friendly’ [investor] – and maybe a better term is ‘founder enabled’ or ‘founder supportive’ – is an operationally active partner helping ensure success.”
“What we look to do [is] partner with founders that are driving transformational experiences through product and enable growth by applying our operational team and capabilities. This partnership is a perfect match for Sumeru and is what we really enjoy and love to do,” said Babcoke.
How Do You Become a Founder-friendly Investor?
After the product has been proven to fit a viable need in the market, investors, like Sumeru, join in. They act as enablers to transition the company to the next level of scale and maturity. This may include developing their sales and marketing teams, advancing product and R&D, or scaling through an Initial Public Offering (IPO).
To become a successful founder-friendly investor, Babcoke speaks to three top tenants followed by Sumeru:
1. Empower the Founder
First and foremost, a founder-friendly investor invests in the founder and encourages the founder-led model. Babcoke notes that founders are the “heart and soul” of the company. Primary reasons why Sumeru chooses to invest in a company are the passion from the founder and the connection they have to the product.
Moreover, a “friendly” investor recognizes the strengths and weaknesses of the founder they invested in. The investor understands that the founder’s product solution was likely created out of a pain point they personally experienced. Thus, the founder is the product, market and customer expert. Partnering alongside the founder, an active investor identifies weak areas and opportunities for growth on top of this foundation. For example, as the company scales, the founder becomes responsible for departments that may be new to them. This is when an active investor can guide the founder to aggressively recruit highly skilled executives in sales, marketing, customer success, etc.
2. Build Relationships
A founder-friendly investor enters a collaborative business relationship with the founder. They perform the role of an enabling “partner.” This collaborative spirit and respect creates trust, allowing both parties to work together to unlock company performance by optimizing go-to-market, customer engagement, retention, etc. “Founders run the company, but we are a resource, essentially on-demand, to tackle anything and everything with high intensity and high cadence, after all, scaling a company is a team sport,”
3. Offer Solutions
Another benefit to working with a founder-friendly investor is predicting issues and providing solutions. Encountering challenges is eminent for all companies, especially for first-time founders. Having an investor who acts as a partner can provide a safety net.
An active investor foresees upcoming challenges based on years of experience and knowledge. They examine the business and provide a process to prepare and even preclude possible issues. “You have to make changes well in advance of a crisis,” said Babcoke. This frees a founder from making difficult decisions on their own or before it’s too late. With the help of a founder-friendly, active investor, a company and founder can scale quickly with less pitfalls.
Are you ready to grow your business? Get insider tips today by listening to the latest episode of the Scaling X podcast series. Healy and Babcoke discuss the art and science of product marketing, value of brand advocates, traits of founders and more. Furthermore, you will hear Babcoke’ s career journey from Harvard and Stanford to pioneering Sumeru Equity Partners.