Startup Life/Opinion/

Seed investors: the good, the bad and the ugly, from a founder who’s been there

Healthtech founder Napala Pratini spoke to 100 angels and seed-stage VCs across Europe and the US. She dishes the good, bad and the ugly.

Napala Pratini
Napala Pratini

By Napala Pratini

In the last two years, my cofounder and I have gone from only dreaming about raising money from investors to running the process — three separate times. 

Our angel, pre-seed and seed rounds came virtually one after the next, which means we’ve had the (sometimes dubious) pleasure of speaking with no fewer than 100 angels and seed-stage VCs across the UK, Europe and the US.

Some were higher quality than others. By high quality, we mean an investor who comes across as someone founders would want to work with, rather than just a source of capital. Here’s what we’ve learned about spotting them.

They have operational experience

Coming from San Francisco, I had come to expect investors to be ex-operators. But in the UK I quickly learned that most investors had never worked at a startup (only 8%, versus 60% of US investors). It wasn’t until we started fundraising that I realised the actual impact of having investors who had done it before. 

While the typical investment banker-turned-VC tended to drill us on numbers (which, frankly, at the pre-seed and seed stage don’t mean all that much) and personal connections (“[insert portfolio company] got around [insert challenge] because they knew [impressive person]”), ex-operators focused more on our personalities, how we approached problems and our track record of execution. 

“While the typical investment banker-turned-VC tended to drill us on numbers, ex-operators focused more on our personalities”

Now that we have a cap table full of people who have been in our shoes, it’s really obvious why this experience makes such a difference. They bring not only invaluable firsthand experience, but also an empathy for the ups and downs of the journey that translates to positive rather than antagonistic relationships. 

They involve associates in the process

There are varying opinions when it comes to how to handle VC associates — one of the strongest coming from Paul Graham, who in sum suggests you never take a call with one. It’s an opinion I often hear repeated by other founders. 

But we’ve found this to be a limited view. Associates from all three of our VC investors were deeply involved with our deals, and the autonomy and respect they were given by the partners went a long way for us in demonstrating each fund’s ethos and culture. After all, I would be worried that any fund that churns and burns associates might approach its portfolio companies with the same attitude. 

They look for signals before hard metrics

As one of our angels loves to say, seed-stage businesses are in the “gestational” phase — so trying to rely on hard metrics is like predicting a baby’s personality while it’s still in the womb. 

We’re a consumer business, so investors are naturally curious about numbers like customer acquisition cost (CAC) and lifetime value (LTV). But the investors who know what they’re doing also know that these numbers are anything but certain (what startup in its first couple of years can accurately predict LTV?) and therefore look elsewhere to build conviction. 

“It is really obvious to founders when an investor only likes a topic because it’s trendy”

I’ve heard from founders who say that numbers-obsessed investors can be a turnoff. Some founders are concerned they might forced into short-term decision-making over longer-term bets once on the cap table. 

They have a strong view on a market

In our experience, the best investors both understand what you’re building and can help guide you in that journey. It’s nearly impossible to do that effectively at the early stages without some strong theses around the market. 

It is really obvious to founders when an investor only likes a topic because it’s trendy. We had someone, for example, tell us they were mostly invested in southeast Asian proptech, but are very interested in European healthtech (conveniently in the middle of the Covid pandemic).

This isn’t to say that investors can’t develop new theses — in fact, none of our investors had made diabetes-related bets before us. But from our conversations, it was clear that they had done their research and understood the sector at a deeper level than simply chasing the next trend. 

You like them as people

A final piece of advice: only take money from individuals you get along with. As they say, it’s like a marriage. 

You should lean on your investors as much as you can — not to do the work for you, but to provide differing perspectives, lived experience and strong opinions. And if you’re going to be leaning on them, they had better be people you get along with and look forward to speaking to.

We’ve spoken with dozens of firms who would have been a great sector or stage fit, but I can say with certainty that I’d take our current investors — who we like very much — any day over a “perfect” fit who we didn’t feel chemistry with. 

Napala Pratini is cofounder of healthtech Habitual

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