How the sausage is made. Part 3: Shaping

Hello friends, and welcome to The Unsophisticated Investor! Brought to you by Scott & Rob, the founders of PitchedIt!

If you want to be one of the first to get access to some of the most exclusive private market investment opportunities in Europe, join our limited waitlist now.

Now, let’s get into it 👇

This week we’ll be diving into venture investing again for part three of “How the sausage is made”. This week we’ll be covering the third pillar of venture capital: Shaping. You can find part 1 here and part 2 here.

So, you’ve now sourced and selected some incredible companies to invest in. That’s great! But the work doesn’t end there, far from it in fact. You’re now a shareholder, and as a shareholder, you have a responsibility to seek the best possible outcome for the business you’re now a part owner of. Supporting companies can take a number of forms and it’s often said there are three types of investor:

1. Smart money: Investors who have an abundance of knowledge relevant to the company. This could be gained from real life experience as a founder or operator themselves. Their knowledge can be leveraged to nurture a company in the right direction. It could also be through services an investment firm has at its disposal. Think recruitment, access to networks, future financing etc.

2. Passive money: Investors who understand they don’t have a lot of value to add beyond their capital. They stay out of the way and allow the company to operate without any, or as little input as possible, from themselves.

3. Dumb money: Investors who think they have a lot of value to add but only end up inconveniencing the company. At a minimum, this can be a nuisance to the founders/board, eating up time unnecessarily and ultimately affecting the growth of the business. At worst, a bad investor can kill a company outright, which happens more often than you’d imagine.

If you can be smart money, that's amazing. It’s equally ok to be passive money. Never be dumb money. Every venture capitalist would have you believe they’re smart money. That’s how they differentiate themselves to get access to competitive, or “hot”, deals. You’ll probably find that most investors don’t have much value to add beyond capital (which is incredibly valuable, don’t get me wrong). In fact, the term “value add” has become a meme in the venture ecosystem for this exact reason.

So let’s talk about what makes smart money, well… smart. The ultimate goal of any investor is to see a great return on their investment. It’s generally the founders and team who make all the magic happen on the path to success, but great investors can deeply influence a company's trajectory in a couple of ways:

• Existing knowledge and experiences – Investors can bring a wealth of knowledge and experience to a company by offering strategic guidance and mentorship. Many investors have extensive backgrounds in building and scaling successful businesses. This experience can often provide incredibly valuable insights which help founders navigate critical, and sometimes existential, challenges and make better informed decisions.

• Services offered by the firm – Great venture firms add value through a range of services designed to support companies in transitioning from early to mature stages of growth. These services generally include recruitment assistance (helping companies attract and retain top talent) and go-to-market assistance (helping companies improve their market positioning and customer acquisition efforts). Some firms also offer operational support in areas like marketing, engineering, legal, and finance. The idea is that by providing these resources, the firm enables startup founders to refocus on their core business activities.

Well there you have it, a short introduction on how great investors Shape their portfolio companies. While the support provided by investors generally plays a small role in the trajectory of a business, the right support at the right time can be monumental. Equally, the wrong support at the wrong time can be fatal.

What we’ve been working on at PitchedIt

• Put a lot of work into documenting in detail our GTM strategy 📑

• Lot’s of preparation for two big investor pitches coming up 🎤

• Many bug fixes and visual tweaks to the platform 🐛 🛠

• Some more back and forth with the CBI 🏦

The Unsophisticated Investor is brought to you by Scott & Rob, the founders of PitchedIt. We’re both sick of private markets being a playground exclusive to the ultra-wealthy so we started a company to challenge the status-quo. PitchedIt’s singular focus is to unlock private markets for Millennial and Gen Z retail investors and help them build wealth through the highest performing private market opportunities.

Scott & Rob
PitchedIt Co-Founders