Startup Financing: A Partnership, Not Just A Handout

Small Business Canada

Entrepreneurs on the prowl for startup funding need to look beyond the money and focus on what additional value investors can add to the business.

There’s one basic equation that applies to virtually all startups: No money equals no business. That’s why securing financing is at the top of every entrepreneur’s to-do list. However, dollars and cents are not the only considerations at play. When it comes to ensuring the future success of your business, choosing the right financing source is as important as the money itself. In fact, it can be a crucial difference-maker in the long-term success of your business.

“The best financing sources are people who are true believers in the entrepreneur’s vision,” says Joshua Troesh, a professor of business at El Camino College and the owner of an investment advisory firm in California. If you truly want your business to be a difference-maker, then your search for financial partners must focus on finding those who support your vision of the impact you want your business to have on the world. 

But it’s important to keep in mind that, regardless of whether the financing you secure is in the form of debt or equity, the provider is going to be in a position to exert pressure on you in important ways. “This often comes as pressure to make decisions that favor short-term revenue at the expense of long-term profitability,” Troesh cautions.

VCs often have valuable networks

Finding the right source of financing is critical from a practical point of view, says Rob Kornblum, a former venture capitalist, Kauffman Fellow, and venture-backed CEO who now coaches startup founders on growth and fundraising. Good venture capitalists often add significant value through their networks of connections. “The best VCs have huge networks they bring to bear for their portfolio companies,” he says. Gaining access to the financier’s network of executives, partners, customers, and potential future acquirers can be the ultimate difference-maker for some businesses. 

Look for a finance provider who is willing to interact with you more as a partner than as a financier, Troesh suggests. That can mean finding someone who brings technical expertise, access to major customers or distributors, manufacturing relationships, or other true business benefits. “Entrepreneurs should interview financiers in much the same way they would interview a potential partner or employee,” he says. Ask questions that reveal what kind of difference a relationship with this financial partner might make to your immediate and longer-term future.

The best financial partners are also able to provide strategic insight into the marketplace because they interact with so many different companies. They can act as a sounding board for founders when critical decisions have to be made, helping them avoid critical mistakes. Conversely, choosing the wrong capital partner can end up being a huge distraction and create unnecessary internal turmoil during a startup business’s most vulnerable period, Kornblum warns.

Get the details in writing

It’s important to codify what you expect from your financial backers—and what they should expect from you—with the greatest detail possible in your written agreement. “It should include very specific rules, and an understanding around the roles and responsibilities of each party, especially what expertise and assistance the financier is expected to bring to the business relationship, along with the boundaries on influencing the decision-making process,” Troesh says. 

Most standard venture capital term sheets give VCs certain rights, including one or more seats on the board of directors, rights of information about the financial and other details of business operations, and the ability to control the sale of the business or further equity. Over the long term, any one of those factors could be a difference-maker for your business—and all of them together almost assuredly so.

Most relationships between founders and VCs last at least five years, some even longer. “It’s more like a marriage than a business partnership because it’s exceptionally difficult to unwind,” Kornblum says. That being the case, the relationship between the founder and the VC is critically important, so make sure there is a good personality fit when you are doing your due diligence. Just as compatibility can spell the difference between a happy marriage and a rocky one, it can be the most important ingredient in your relationship with a financial partner and your company’s future.

Lenovo Canada

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This content was co-produced by Lenovo and Inc., and originally appeared on

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