It is incredibly important to understand the incentives of investors when you are raising money. This used to be fairly easy – you raised money from Venture Capitalists who wanted to see a big return on their investment. The best of these investors were incredibly focused on doing the one thing they did well: investing in technology companies.
The world looks different now. There are a lot of different types of startup investors, each with a different approach to investing and different incentives for doing so. While they’d all prefer not to lose money, the differences in how their incentives and expectations are structured are critical in understanding how to decide whether or not to work with them, how to negotiate with them, and how to interact with them over the lifetime of your relationship.
Below, I’ve tried to highlight the key motivations and structures of each of the investors you are likely to encounter. While I haven’t attempted to catalogue all the ways in which the incentives of investors influence their behavior – sometimes to the detriment of the startup founders – this should work as a starting point to think through those issues.
Click to Add the First »