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ACADEMY: Why do co-investors matter?

Posted by Erica Duignan Minnihan on Jul 25, 2016 11:00:00 AM


As an early stage investor, finding a great company is only half the battle. As in life, in investing “it takes a village” as they say. And that is why companies are very careful about who they invite to be on the cap table. Certain investors can add a lot of strategic value to a startup, providing the “grown up in the room” to young teams by harnessing their experience through service on the board or in an advisory role. Unless you want to be single handedly responsible for driving the growth of the company and an eventual liquidity event, make sure you have some high quality co-investors in the round. Beyond the ability to use their experience to help your founding team avoid startup pitfalls, experienced value add investors can also help the company find funding for follow on rounds. The ability to go from a Seed Round, to a Series A, B and even C if necessary is not innate. And having investors who are part of the VC community or have follow on funds themselves, can be a vital differentiator to the successful future capitalization of the company. Great investors also tend to have relationships with people who run companies that could potentially be acquirers of the startup you are investing in. And in the current closed IPO market, this is vitally important, as it is one of the primary sources of investor liquidity. So look for co-investors that have a track record of providing value, and stay away from those that may be disruptive to the growth of the startup.

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Topics: Venture Investing Academy