Do I need a “big name” on board to get investors?

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Do I need a “big name” on board to get investors? I saw a story recently on how a start-up managed to get investors on board after they mentioned that Mike Cannon-Brooks had put money in. How much weight does having a “big name” involved have with other investors and should I concentrate on getting a well-known figure on board in order to lure others?

As in many endeavours in life, no one likes being the first. Whether it is the first kid to jump off a diving board, the first patron to try a new restaurant, or the first person to invest in a new business.

In most early stage capital raising rounds – if there are multiple investors – usually one of the investors takes the lead role. The lead investor might negotiate the term sheet, carry out the due diligence, talk to customers and staff, and negotiate the shareholders agreement on behalf of all the investors coming into the capital raising round. This approach saves time and money for everyone.

If the lead investor or any of the group investors is a well-known and successful player in the sector, then you have created significant credibility. If you are in the travel sector and Graeme Wood from Wotif or Graham Turner from Flight Centre are interested in investing in your company, you will generate strong interest from other investors. Atlassian co-founder Mike Cannon-Brooks has almost the perfect profile for this type of role. He is young, cool and very successful – three qualities that do not often come together in an Australian early stage investor.

So, yes, a well-known investor or board member certainly helps you to attract capital, staff and customers. But most of your efforts should remain focused in building and running a great business. If you get that right, the rest will follow.

No number of well-known investors or board members will cure a badly run business.

This article was first published in StartUpSmart.

© 2013 – 2014, Philip Alexander. All rights reserved.

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