Purpose-Led Business, Funding and Choosing Investors

Purpose-Driven Business Owners Need Purpose-Driven Investors

The content of this post has been swirling around my mind for some time waiting for me to find the time to finish it. I have had several conversations about choosing whether to accept investment, and from whom, with both clients and friends this year. On Sunday last, someone I am connected with shared a LinkedIn post where advice was given to female entrepreneurs seeking venture capital. While the ideas were not all bad, one of the suggestions was for women to bring a man when pitching, as VCs may be more open to the investment. I know, seriously. That was enough to get me to finish this article! As I commented on the post:

That is such nonsense….The key to successful pitching is to have a deliverable strategy and a coherent message. And even then, you won’t win every time. If the person you are pitching to cares whether you have a man beside you - they are not the investor for you. You will have a relationship with your investors which goes way beyond the initial pitch. Better to be both confident and patient. Wait for the one who sees your vision and will share your commitment to the project.

While the advice of that post was only for female founders, it raises a bigger issue on how we view the power dynamics of funding and investment in general. The basic premise for business owners and entrepreneurs, when seeking funding, is you need to work very hard to get anyone to offer the cash injection required. To a degree this is true. You should ensure you have a deliverable strategy and a coherent message around that. Pitching is an art in itself; developing and practicing the delivery of your message matters. Each time you do it you get better. Yet, what this narrative around ‘convincing’ investors does not do, however, is ask the entrepreneur to remember they have agency in who they accept funding from. This point is true regardless of gender.

Cashflow Matters

I don’t want to downplay the importance of cashflow here. Regardless of your business size or ambition, every business needs money, even if that money is just to pay you. I understand this first hand, trust me. Cashflow is everything at the start; it is how you survive and the most recognisable means of demonstrating you have a viable business model. Cashflow problems, or the failure to raise capital for expansion, is the number one reason that startups (or for that matter any business) fail.₁  With this reality in mind, it could be easy in the early days of a business to say yes to money from anywhere.

₁CBI Insights - The Top 12 Reasons Startups Fail

While accepting investment may solve a shorter-term cashflow or funding issue, equally you want to ensure you are not creating a longer-term issue in the process. The feeling of relief any investment may bring will pass very quickly if the investors you choose are not fully aligned with your vision and strategy for the business. Discernment about who you accept investment or funding from matters. This is particularly important for purpose-led business owners who may have metrics of success and timelines which differ from available investors.

To Execute Purpose Well, You Need The Correct Investors

If you want to execute purpose well, you must choose your investors just as much as they will choose you. You need investors who share your ethos, understand your approach to said purpose and have the same timeline in mind. This is not an easy match to find. Purpose-led business is a new area. There is little expertise in it. In many cases, business owners are navigating the unique and new challenges it brings as they arise. It is no different for investors. Investing in purpose-led businesses is new and thus expectations may need to be different. In this context, understanding your investor is as important to you as them understanding your business.

You need to find investors as committed to the outcome of your vision as you are. It is one of the reasons I have previously suggested that private companies may prove to have a ‘purpose advantage’ over listed companies as they are not subject to the shorter term demands of public markets. This potential for a ‘purpose advantage’ would be lost in any private investment in which the investor match is not correct. On the flip side, the right investors can inject additional resources, expertise, and insight that you don’t currently have to drive your company and vision forward. If you get the investor match right, it can be a powerful accelerant for your business.

Understanding The True Cost of Capital

Capital always comes at a cost.  If an investor gives you money, typically they own at least part of your business and have an expectation of return, not to mention some control over the business strategy and decisions. At the very least, you will need to meet with them at regular intervals to walk them through how the strategy is progressing. Even when you find the most suitable investors for your business or product, they will require servicing of some sort. Outside of asking how much they can give; you should also be asking yourself some version of the following question:  

‘Beyond the financial injection, what will be the cost of this capital to my vision and the integrity of what I plan to achieve?’

Your first meeting, or any meeting before a contract is signed, with a potential investor provides a useful filtering system. If they are worried about your gender in the first meeting, they will be worried about it in the next. Similarly, if they struggle to understand your strategy, vision, and purpose in the first meeting, they will struggle in the next. What investors are displaying in early meetings is what they value. Maybe they value men more, maybe women. Perhaps they value quick returns, perhaps they care little for the environment, perhaps they care a lot. Regardless of the specifics, you should care about what they care about. All of this tells you, beyond the capital investment, what they value. Pay attention and make it a priority to ask and find out. If there is a mismatch in values in the early days, this will be a thorn in your side longer term. It will prove to add emotional labour to the relationship that an already busy entrepreneur or business leader cannot afford to take on. Like everything in life, you should be wary of anything which asks you to choose quantity (money) over quality (the investor).

Ensure Expectations Are Aligned

I have given thousands of investment presentations over the years and few things can sour a relationship as much as a mismatch in expectations. In my experience, you can overcome bad performance, any crisis and the headaches of economic downturns but nothing will create more problems and absorb more of your time than an investor who thought you would deliver something different to what they actually got.

This is something you must be prepared for. At some point, your business may enter a challenging period, profitability will take longer to reach or the economic environment will change. We talk about investment risk because it exists. It is likely that something will happen to create risk for your business. It is in these moments, the investors you have chosen will be important beyond money.

What will the investors do if you run into issues?

What will they do if you have to make a revenue-negative decision to uphold the integrity of your vision?

What will they do if you need more time to deliver?

Having honest, realistic discussions during the initial stages builds trust, sets the correct expectations, and ensures alignment.

Do You Need Money Or Simply More Patience?

For young purpose-led businesses, I am not always convinced that getting investment is the right answer. I read an article in the Sunday Times in July which asserted, ‘bootstrapping was back’. You can read it here: It’s time to pull your business up by the bootstraps (thetimes.co.uk). It really resonated with me. While getting a cash injection can seem like a shiny solution when you have little money to invest in and grow your business, it also adds additional pressure to perform. In a purpose-led business in which you are breaking new ground and doing things in different ways, this may add pressure you don’t need or want.

While cashflow issues are the number one reason you may fail; ‘ran out of cash’ can also be rephrased as ‘needed more time’. More time to develop, more time to experiment, more time without the pressure to grow quickly and, of course, more time without the financial pressures that delivering for investors can bring. Often what a business needs at the beginning is experimentation; the ability to fail in small amounts. An injection of cash too early may just provide additional pressure not to fail, spelling the end of your innovative period.

In my case, I didn’t expect my business to pay me enough for at least 3 years. I did some consulting work on the side during that period to ensure I had the cashflow I needed to live. This time allowed me to incubate and develop my vision and grow my business without unnecessary external pressure. It also allowed me to stay ‘on purpose’. Nothing bends our values like having no money or needing to deliver for demanding investors.

The hardest part of this for me was learning to be patient. I could have found the extra capital; lord knows I know enough people in the industry. Despite my occasional frustration, I knew time was more important. What the business needed was an investment of time, an investment of my time. I needed to dedicate myself (in reality for free) to developing both the strategy and the messaging. Allowing it to grow organically and slowly, developing an understanding of the market more fully, overcoming mistakes without pressure from someone else and fine tuning the messaging all happened because of time. Perhaps most importantly, that time allowed me to develop, to become who I needed to be. Today, I am a more solid entrepreneur both in my conviction and my ability to communicate my vision than I would have been without that time. I am not sure additional capital would have provided anything extra compared to what this time has given me.

The road is different for every entrepreneur and business. Money matters. Cashflow matters. Some businesses are more capital intensive than a professional services and media business such as my own. I would reiterate I believe investment can be a powerful accelerant for any business. Yet, the broader point remains; you have agency in most situations. You have the power to choose who you do business with or enter investor relationships with, and when.

‘Integrity Has No Need Of Rules’ Albert Camus

As someone heavily invested in purpose, what struck me most about the advice in the original LinkedIn post was not that it was all false. It may, unfortunately, be true. Like all industries, there remain many archaic attitudes and approaches within the investment world. Beyond financial return, our definitions of success are changing globally and within that definitions of what makes a business successful. In some cases, VC firms and other investors have not caught up with that trend yet. They still have a singular definition of success. Taking that into account, there are many reasons to try and ‘game’ the system or fit with what they need. But that raises a bigger question. Will gaming the system help you deliver your vision or simply lead you away from your desire to run your business with purpose?

What is clear to me as I get older is that I no longer want or try to play by these rules. They were often made by other people to their own benefit and not mine. And where have these rules and ways of doing things led us anyway? They certainly don’t forward the more equal (gender and otherwise) version of society I would love to see. I would rather do what I know to be right and work and partner with people who share that ethos. I find when I am clear on that, the right people find me or I find them.

We do not change or improve our world by accepting old ways of doing things. Rather we seek to raise the bar. We understand there are better ways of doing things than have been done in the past. When we expect that of ourselves, in turn, we can demand it of others. Purpose-led individuals know there is a deep need for a better, more equal, world. If we don’t take a stand over these things now, the ways of doing things in years to come will remain exactly the same. We will have missed our opportunity to be disruptive when it was right in front of us.

References:

₁CBI Insights - The Top 12 Reasons Startups Fail

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It goes without saying this is an opinion piece and should not be constituted as advice. Before considering funding for your business or entering into an investment agreement, you should seek out the independent advice you need.