One of the problems with the startup ecosystem is that there is a lot of distrust between founders and funders. Everyone has horror stories to share , and these get publicly aired when the startup folds. There is a lot of recrimination and finger-pointing, because while success has many fathers, failure is a bastard child, and everyone is happy to pass the buck! It’s high time we learned to bridge the gap between founders and funders because we need to create a win-win.

One way of doing this is to request angels (and other investors) to publish their investing thesis online. This would be basic information: which sectors they’re interested in investing in; how much they’re willing to put in; what their sweet spot is, as regards pre-money valuation; what kind of founders they’re looking for; what value they can add; and equally importantly, what they will say no to.

Some investors do this, which is great, but I think this should become a standard practice. Part of the problem today is all the secrecy which shrouds the entire system. It seems to have become a competitive game, where founders compete with each other in order to raise money; funders compete with each other in order to fund the hottest founders and back companies in the sector which seems to be the fashion of the day; and funders and founders try to get the terms which are best for themselves, rather than those which will help the company to succeed over the long haul.

This creates long term harm, because a lot of money which in invested in the startup ecosystem ends up going down the drain. With the present system, we end up funding companies which are often copies of each other, so there’s very little innovation which is created.

It’s actually in the investor’s best interests to be open  and transparent. This way, it’s only the founders who meet their screening criteria who will approach them for funding.  They won’t have to waste time screening companies which are of no interest to them. This means they can devote more attention to those which are within their sweet spot, and this will help them grow more quickly.

More importantly, they will get a reputation within the eco-system of being fair funders to deal with, which means they have a chance to become the funders of first choice, which is a good position to be in!

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

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