Thursday, April 7, 2011

Investors can provide more than money

In two recent posts we discussed a business plan for online retailers and the stages where capital investment can contribute to the growth of an online retail business. When talking to investors there are other key areas where they can contribute to the business: their contacts, relationships and expertise.

I caught up with Mike Canon-Brookes, one of the co-founders of Atlassian recently. Accel Partners, one of the top VC firms in the US recently invested $60m in Atlassian. In addition to their capital Mike was telling me some of the additional benefits Accel Partners are bringing to the Atlassian business:

Assistance with hiring - The people working at Accel have great contacts in the software space that Atlassian operate in. Accel are helping Atlassian with key senior hires for their business and are assisting Atlassian in recruiting members for their board of directors which they are putting together.

Reputation - For Accel to invest in Atlassian they obviously conduct quite rigorous due diligence and are strong believers in the potential of the business. This feedback from a company like Accel shows that Atlassian is clearly a successful and strong business. This helps in attracting new hires to the business, business development opportunities and marketing their products.

Media coverage - Accel's investment in Atlassian lead to quite a bit of media coverage. This has helped raise awareness of Atlassian which helps in marketing their products but particularly in improving business development opportunities and helping to attract new talent.

Networking with other Accel companies. Mike said there have been occasions when he's faced a business problem recently and he's run it past Accel. They've mentioned that another company in their portfolio faced a similar issue and Mike has been able to pick up the phone and speak directly to someone at that other company about how they dealt with the issue. Mike and Scott will both be attending an Accel CEO's forum in the US later this year. They'll hear from and present to CEO's of other Accel Partners companies - people like Andrew Mason of Groupon and Drew Houston of Dropbox.

In addition to capital they could provide, how could an outside investor assist an online retailer like Shoes of Prey?

Similar to how Accel has helped Atlassian the right outside investor to Shoes of Prey could assist us with hiring, growing our reputation, media coverage and networking.

Manufacturing in China. An investor with manufacturing experience in China might be able to help us with sourcing new factories to work with or new suppliers to buy components for our shoes from. They might also be able to help us with hiring in China as we continue to grow our team there.

Online retailing and marketing. An investor with experience in online retailing and online marketing might be able to assist us in these areas, as well as hire good people with online retail and online marketing experience.

Strategy. It's still relatively early days for the Shoes of Prey business and an experienced external investor would provide a great source of ideas and sounding board as we determine the best direction for the Shoes of Prey business to develop.

One of the great things about having an outside investor help in your business would be that they have skin in the game, they've invested their capital, so they're going to be going out of their way to assist you in growing your business. Many angel investors and venture capital firms will only look to invest in businesses where they have relevant experience because a) these are the businesses they understand best and b) these are the businesses they can offer the most assistance to. Having an investor with the right experience can in many cases be more important than maximising the valuation you get for the investment in the business.

What other ways have you seen investors help a business they've invested capital in?

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