How My Experience as an Investor Prepared Me to Be a Founder

Photo: Courtesy of Naomi Shah

It’s difficult to think of anything in my life that has required a wider or more dynamic skill set than founding and running a company. Unlike the way founding is sometimes described in pop culture and media, you can’t just have great ideas for products and services. You have to be capable of building a healthy company culture, understand how markets evolve, and anticipate what consumers will want in the future. Personally, the last year and a half have honed a higher tolerance for uncertainty, an irrepressible curiosity about our market and users, and the ability to communicate exactly what the company is trying to achieve to inspire all of our people. 

While there’s nothing quite like running a start-up, I’m grateful that I had an opportunity to work at a venture capital firm before taking the helm of my company Meet Cute. Because VCs work directly with founders every day, they need to be capable of seeing the world from a founder’s perspective, which means identifying gaps in the market, crafting the right narratives about promising companies and ideas, gathering a lot of information from disparate sources, and making informed decisions in the face of incredible uncertainty. Due diligence is the central task for VCs, but they also have to be willing to take risks on the companies they believe in. 

Investors and founders are on the same team. The best partnerships are often described as a marriage. That analogy rings true especially because of the ups and downs of founding over the years, which requires an intense trust in the people you work with that they will be there when you need it. Aligning on the direction of the company, personnel, and emerging market opportunities is critical. Ahead, I’m sharing some of the many lessons I learned as an investor that have also served me well as a founder.

Lesson #1: It all starts with curiosity.

Successful VCs are always on the lookout for companies that capture and hold their interest and users’ trust. Founders should want to work with investors who have thoughtful questions about their products and services, understand their industry, think differently, and believe in the founding team. It isn’t just a matter of cutting a check and hoping for a quick return. In turn, VCs should add value by thinking creatively about what the market will look like in the future and advising the company. I learned from shadowing partners at USV that the best VCs were also the best listeners, and think of VC as a service industry. 

This starts with genuine curiosity about what a company does and what impact it could have on the world with the right guidance and resources. The average holding period for VC investors is eight years. This is a reminder that investors need to be mission-aligned as they will work with companies over the long term and are investing in the sustainable success of their portfolio companies. 

VCs and founders should establish open lines of communication right at the outset. I’ve never been afraid to ask questions or contact experts who know more than I do about a subject, and these skills served me well as an investor and a CEO. 

When I was at the VC firm, the best way to learn about early-stage companies was to work directly with them on forecasting, marketing strategy, fundraising, and other issues and consult with experts outside of the company to bring new perspectives to the table. The same collaborative mentality is an essential part of the culture at Meet Cute today. If we need to talk to an expert about something specific, we are not shy about asking and learning. Time and time again, smart people in the industry who we look up to make time for those who are genuinely curious. 

Lesson #2: Make the best decision possible with incomplete information.

Early-stage investing offers unique benefits, such as the ability to identify innovative companies before other investors, help steer those companies in a positive direction, and ultimately secure more growth over time for taking on a much larger risk. These are all reasons why it’s no surprise that early-stage VC investments have surged over the past decade from $14 billion in 2011 to just over $47 billion in 2019. Early-stage investing is on pace to set a record this year. The first quarter alone saw greater deal value than the entire year in 2011.  

Early-stage investing also comes with quite a few obstacles, and a lack of information is one of the biggest. Early-stage investors don’t have as much data about a company’s growth, operational efficiency, etc., so many of their decisions are based on pattern recognition and intuition. The founders of early-stage companies face similar constraints. There’s no playbook for what many of these companies are doing, so we have to be comfortable making decisions with limited information. Just as investors need to accept the fact that they will sometimes make the wrong call, founders should be willing to fail. If everything is going too smoothly, you should ask yourself if you’re scaling ambitiously enough. 

All of that said, founders and VCs should be as fastidious as possible in their research. Due diligence as a core focus means putting in the time to learn and develop opinions and perspectives. But due diligence always has to be placed in the context of the realistic constraints you face, especially in building something completely new, and knowing what level of risk you’re willing to tolerate. 

Lesson #3: Always tell your story

A company’s story is integral to its identity, and it serves as one of the most effective ways to reach your audience and let them trust our brand, galvanize employees around a common message, and attract the best investors. As an investor, I frequently told stories about innovative companies to convince my colleagues that we should back them, often in the form of an investment memo or a short and sweet presentation in a team meeting. I also helped start-ups craft their stories when they launched fundraising rounds or needed to prepare for board updates. Storytelling is the most powerful tool we have as humans and we know that the emotions of a story are remembered far better than facts.  

Moreover, I’ve realized how sharing your story internally is vital to improving morale and helping employees rally around a consistent set of values and objectives. Gallup reports that only 27 percent of employees strongly believe in their company’s values, while less than half say they strongly agree that they understand what the company stands for or what sets it apart. By telling the company story and vision often and consistently, the team can rally around what they’re working toward and why it matters. 

Reflecting on the last year, there is a significant overlap between my experiences as an investor and a founder. By making a conscious effort to understand how my experiences tie into and bolster one another, I hope that I can show where founders and the VC firms that support them can build stronger relationships and thereby more unique and impactful products in the world. 

Photo: Courtesy of Naomi Shah

About the author: Naomi Shah is the founder and CEO of Meet Cute, a venture-backed media company that has produced over 300 original light-hearted romantic comedies in podcast form. The company celebrates human connection and the full spectrum of love with the core mission of having every person feel like they are reflected in Meet Cute stories. Since its inception in February 2020, the podcast has had over two million listens across over 150 countries and has been featured in the top 10 of Fiction on Apple Podcasts and Spotify. 

Before starting Meet Cute, she was a member of the investment team at Union Square Ventures, a technology venture capital firm in New York, where she spent most of her time talking to companies in the consumer and well-being space. Prior to that, she was a macro equities trader at Goldman Sachs and studied mechanical engineering and human biology at Stanford University.

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How to Perfect Your Pitch and Attract Investors with Venture Capitalist Visionary Arlan Hamilton

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In 2020, venture capital funding boomed—but women’s share shrank. Startups, overall, raised 13% more from venture capitalists in 2020 than in 2019, but female-founded companies raised a staggering $190M less in 2020 than in 2019.

As the founder and managing partner of Backstage Capital, Arlan Hamilton aims to turn these discouraging stats around. Her mission is to minimize venture capital funding disparities by investing in minority founders.

Since she founded the firm in 2015, Backstage Capital has raised more than $15 million (!) and invested in more than 180 startup companies. 

At our recent Money Moves Digital Summit, Salah Goss, SVP of Center for Inclusive Growth at Mastercard, sat down with Arlan to chat with her about her incredible career and gain her insights into how entrepreneurs can perfect their pitch, attract investors, and raise money for their businesses.

ICYMI, we’re sharing a few of the highlights from the conversation below.

Let’s start at the beginning – you have a very untraditional background compared to the traditional VC world–how did you break into the industry and set yourself up for success?

I think what actually helped me break into the industry was the fact that I was different. I'm a woman, a person of color, LGBTQ, I lived in Texas at the time, outside of the major markets, I did not go to college, I didn't have any sort of formal financial education, I did not have any contacts in Silicon Valley––and the list goes on and on. Often, I think the qualities that make us special or different that help us find success, but it takes curiosity and strength to actually lean into them.

I was interested in starting my own company at the time and excited about the prospect of fundraising until I came across some staggering statistics, including the fact that 90% of venture funding goes to white men. Demographically speaking, that means 90% of venture funding goes to a third of the country. It didn’t make sense to me. I began to ask, what if there were funds that did the opposite? 

Over the next three and a half years, I had the patience to talk to people–founders, investors, etc. I received as many ‘no’s’ as one human can get in a lifetime but I kept digging into that question, ‘what if’? I began investing in women, people of color and LGBTQ because that's what I knew. Over time, we've expanded our reach, but there are millions and millions of potential people in this demographic alone.

How do you choose which businesses to fund? What do you look for in a business and/or an entrepreneur?

It's a bit of a moving target because I feel that I continue to evolve as a persona and as an investor, but the one thing that has remained the same–from the time I was homeless and on food stamps and had no money to invest, to investing in almost 200 companies later–is this spark when I look across the table and see someone who reminds me of myself. I look for an entrepreneur who is what I call hungry not thirsty: there’s a passion without desperation. 

As far as the companies and ideas themselves go, if it's something that would take me a decade or more to even hope to accomplish then you have my attention.

It’s safe to say you have been privy to a lot of pitches and pitch decks—What are three crucial elements everyone should include in a pitch deck when raising money and why? 

1. This may be different for different people, and it will be different for different investors. For me personally, it really comes down to authenticity. You do not have to be an extrovert or try to entertain me. It's not necessarily about having a talent for being an entertainer, but rather a combination of pragmatic and passionate, and being able to articulate their story in a way that allows me to dream with them. As Katy Perry says, the best storyteller wins.

2. I speak with thousands of companies and receive thousands of pitch decks a year. I better not know more about your company than you do–or about your competition. Before you go out and ask other people to invest in you, you better invest in yourself and look for the answers in all the different ways that you can. Learn and talk to your peers and talk to people who have been there before you. Talk to the CEOs of fortune 500 companies and find mentorship through other people who are maybe slightly ahead of you in the game or through people who are doing this all with you. There's something that they figured out, or that they learned, or that they heard about that can help you––and you’ll probably help them too!

3. I understand that for some, it’s not only pitching a business, it’s their livelihood. But when I continue to ask someone more questions, it means I’m interested, even if the questions are tough. Sometimes people will shut down, get defensive, or quick to end the conversation when they feel it’s too much work to find the answers. Remember that you're also asking people for tens of thousands, hundreds of thousands, maybe millions of dollars, so that's going to be part of the process and you have to be prepared to put in the work. 

Black women are among the fastest-growing entrepreneurs in the U.S.—yet they only receive a fraction of venture capital funding. How can we turn this statistic around and ensure the small business community is actually representative of society as a whole?

That’s a lot of what we're doing at Backstage and hopefully we’re one of many. It has to start with a global conversation and understanding that when companies are backing black women, they're also backing a progressive infrastructure, they're backing healthcare, they're backing all sorts of innovation. It’s not just what the country can do for black women to repair damages, it's also what black women are going to do for the country–and what they have been doing.