Ep 37 – What Investors Really Want From Your Startup




Pat is an investor, advisor and the author of Meet 100 People. Inspired by meeting thousands of people in an over thirty-year career, Pat wrote Meet 100 People to encourage us all to proactively, and consistently meet people in person or by video. Her goal is not only to inspire, but to provide practical steps to expanding your network, whether you are just starting out, building your career, and even after a long career, creating your next chapter. Pat speaks regularly at colleges, to alumni groups and to corporations. She gave a TedX Talk at Dartmouth College.

As the founder and CEO of The Path Ahead, Pat identifies high growth companies in which she invests and takes on either formal or informal advisory roles. Since 2016, Pat has invested in over a dozen innovative private companies, more than half led by women. She is an independent director of Stax Consulting and advises the CEOs of the Cranemere Group and Strongbow Consulting.  Pat is a mentor at W.O.M.E.N. in America, a former judge for EY’s Winning Women Program and mentor with TechStars.

Prior to her current role, Pat spent 30 years with global growth investor, General Atlantic, most recently as managing director. She began her career as a consultant with Bain & Company. Pat is a graduate of Dartmouth College with a degree in computer science and holds an MBA from the Harvard Business School.


What are the three non-negotiable factors EVERY investor looks for, and every founder MUST demonstrate to get funded?

How can you create an intelligent yet simple startup roadmap no matter where you’re starting and what resources you have access to?

What steps do you need to take as an early stage founder to get investors excited even when the market isn’t hot?

In this episode, Pat Hedley, veteran private equity investor, advisor and author, talks about how to nail the trifecta of market, traction and returns, the sure-fire method of proving your concept, how to use every aspect of who you are and what you do to amplify your investment story, and much more.

Episode Highlights

  1. What every entrepreneur should know about private equity, and yes, that includes venture capital
  2. The three things every investor must love about your startup, no matter what your stage
  3. The hardest thing to change about your startup and how to make that work in your favor
  4. How to find creative ways to fund your early days
  5. The fatal flaw that trips up startups and how to avoid it
  6. What you can learn from Shark Tank even if you never plan to raise money for your startup
  7. What founders must understand about how and why the markets impact their fundraising efforts more than they know
  8. Why founders can never ignore understanding the investor’s mindset if they want to get funded
  9. How to leverage your nontraditional background as a founder to increase your chance of getting funded
  10. The R-rating (risk) that makes or breaks your startup and how to tackle it effectively
  11. Simple communication tips you must follow in every investor interaction
  12. Networking secrets for the rest of us – especially if you plan to raise

Links and Resources:

Meet 100 people: Pat Hedley’s TedX Talk

Meet 100 People, the book: The book Pat has authored about how to meet new people and expand your network.

MargauxNY – Handmade shoe company founded by women that Pat mentions in this conversation 

Interview Transcript

Shubha Chakravarthy:  Good afternoon Pat! Thank you so much for joining us today. We’re really excited to have you!

Pat Hedley:  I am so excited to be here.

Shubha Chakravarthy:  You have had a pretty interesting career. You started off in consulting. Then you spent a long time in private equity and now you are very active in startup investing. What has been the guiding principle that has helped pave your way?

Pat Hedley:  I think the main guiding principle for me and the advice I give to young people is to put yourself in situations where you continue to learn. The learning never stops.

I’ve had a very long career, a number of decades now, and I’m continuing to learn. I think that is an incredibly important part of the whole career journey, to find places where you can learn and also surround yourself with people who you enjoy being with and who can teach you along the way.

I think the more you recognize that whatever you are doing, you are not doing alone, and that there are lots of people who are further along the path or on the path with you, that those can be people who can help you and you can help them, I think it makes a huge difference in how you think about your own professional development and your career.

Shubha Chakravarthy:  You spent a lot of time in the private equity world. For those of us, who are not as familiar with the private equity side of things, can you explain exactly what it is and if and when that source of funding might become relevant to an entrepreneur?

Pat Hedley:  Private equity is a term that describes investing generally in private companies and on investing on behalf of institutions and individuals collectively called limited partners. Usually, it is the term used in private equity. I think of private equity as an umbrella term that covers three different areas of investing.

One is those investors who look at earlier stage companies like venture capitalists. They are under the private equity umbrella. Those growth investors that invest in companies that are more established, they are larger, they have proven business models, they have revenue customers, et cetera.

Then on the large end of the size are the leverage buyout type companies where they invest in hundred million or more in very large companies sometimes taking them private.

They may be public companies going private or sometimes purchasing them outright. So, that kind of falls under that big umbrella on the venture capital side, and this would qualify as private equity.

So, before you even qualify for venture capital, people get funding from a number of sources, including friends and family, angel investors, and sometimes even family offices that look at smaller opportunities.

That kind of comprises the whole umbrella of private equity as opposed to debt. So, this is investing to own a piece of a company.

Shubha Chakravarthy:  These are very different animals in terms of the very early-stage ventures relative to the more mature companies. Are there commonalities across the board that you would say apply regardless of what the stage of the company is that is being invested in?

Pat Hedley:  I think one of the most important things any investor looks at is the market. Is the market large? Is it growing? What does it look like? Is there a large market for whatever product or service it is that you propose to launch a business for? The second is, is there traction?

Now, traction at an earlier stage company looks very differently than traction at a growth size company or a much larger company. Traction means, are people buying this product or service? Are you getting market share? Is it appealing to whoever the ultimate customer is?

Then the third really important piece is management. Who is doing this? Are these people qualified to be doing this? Have they surrounded themselves with additional people in order to execute on whatever the vision it is that you are trying to bring to market.

Shubha Chakravarthy:  A small side note, I was reading this morning on LinkedIn or somewhere that as an investor, the one thing that you cannot change about the company that you are going to invest in is the market. Almost anything else can be changed. What are your thoughts? Do you agree with that?

Pat Hedley:  Well, anything can be changed in a business and some people advise you to work on something if you have to fail. Fail fast and redirect. It doesn’t often happen that you go from providing, say, an industrial product to going into a healthcare product.

It is not out of the question that whatever it is that you’re producing might be more appropriate for one market versus another market. I actually very much believe that the hardest thing to change is who the CEO founder and leader is, and this is true across that spectrum.

People do change executives, CEOs, if, things aren’t working out. But that is a harder change. So, bringing in the right people is the most important thing that you can do if you believe in the market, and you believe that the product or service being offered is going to get traction.

Shubha Chakravarthy:  You talked about failing fast and failing early. A lot of that kind of speaks to the earlier stage investing. What got you interested in early stage investing and how are you involved in that sphere?

Pat Hedley:  I spent nearly 30 years of my career with a growth equity firm. These are companies that were up and running, they had product market fit. In many cases you could do what is called due diligence, which is you could talk to customers and clients, see what they say about the products and services, get a feel for whether what the company is saying and what the customers are saying match and align and make sense.

That was a wonderful experience for me. I left about seven years now with the idea that I would invest in and advise growth companies. So, my original plan was not to invest in very early stage.

I actually still like the idea of finding companies that do have some revenue, that do have an actual product or service, that you can actually talk to customers and clients and see how they are doing.

I find it a little bit challenging, investing in de novo ideas or business plans where some of the real important work hasn’t yet been done. For example, figuring out product market fit, figuring out who are the right customers.

One of the things that I hesitate to do in very early-stage companies is to make an investment when they don’t yet understand their customer base.

So, the advice I would give to anyone starting a business is to think hard about what it is that you are trying to do. What market is it that you are trying to address? What is the product or service that you are offering to a potential client, whether that client is a consumer client or enterprise client?

Then you must test it out because if you can’t test that out, first of all, you can’t be convinced that what you are doing is going to work and you can’t then convince somebody else to provide capital and to let you go and pursue that idea.

So even early-stage companies with just an idea can go that next step to test out what people think and whether it is having an enterprise client use their product, give them feedback, be an early-stage adopter, find either financial or intelligent contractual ways to show that yes, they are interested and they want to do this.

You need that as a founder of a company, and you are going to be able to have to use that experience and that knowledge to gain investors and to have somebody provide you the capital to continue to do the work that you are doing and that is true for any big company. You always hear about the unicorns, the people that did tremendously well.

Even when Uber was first started, it was an idea, but there was enough around the idea. It was certainly a huge market transportation and connecting people with cars was like super important. But having a test app to show “This is how it would work; this is why it would be appealing.”

Having people say, “Oh yes, this is something I’d use.” Then having a business plan to show, “This is how the financials are going to look like at this point in time or next year or in five years.” Those are very important considerations as you start a business.

Shubha Chakravarthy:  Awesome. The one theme that I picked up loud and clear is this point around being able to test traction, being able to test whether there is in reality something there that would justify an investment.

There are two sides of the challenge, right? The first challenge you spoke about as an investor, how do you know it is not vaporware?

It is a brilliant idea, but who knows? Yes, you can test the market, but you don’t know if it is going to be real. What does it translate into in terms of the founder side of being an early-stage founder and still needing capital and therefore, what counsel would you give to someone who is an early-stage founder?

Where should they go look for how much and what are the non-negotiables they should be watching?

Pat Hedley:  That is a very loaded set of questions. There is a lot to unpack over there. So much of it depends on what the business is and at what point one is in their career.

Say that it is somebody who has worked several years for a company, and as part of their career progression, they found that there is a service that the company would need that nobody is providing. So, they decide to leave their job and say, “You know what? I’m going to be able to provide the service.”

You have to then figure out what is the service? How much does it cost to deliver it? Say that it is a software package that has to be written. How much does it cost to do that? If I were to do that, would my customer buy it?

A really great way to proceed in that instance would be to go back to your former employer and see if they might fund some of it for you. See if they might be a potential client for you.

If you are a coder then you could code it yourself. You might not be paid for that period of time, but that is the investment you are making in that firm. Then once you have developed something and you have some relationship with some client, then you can start to think about, “How do I make this bigger and how quickly do I want to do it? What is the cost to doing that?”

In an ideal world, you build a business where you sell something for a profit, and the profits help generate the growth that you are going to experience over time.

It may be slower growth than if you got a capital infusion. If you get a capital infusion, you are going to give up some ownership of that company. So, you are not going to be a hundred percent owner anymore, you are going to be an X percent owner, and for that amount of money you should be able to grow the value of the business that much quicker.

You have to say, “Where am I going to spend that money? How is that money going to have a payoff for me so that I’m going to build a real business that generates cash?”

A lot of people go into businesses not really thinking about the economics of the business. If you give things away, it is easy to do that. People are happy to buy products all day long. if you’re giving it to them.

You have to be able to get value for what you are producing. You have to be able to price it well. You have to be able to deliver it well, and you have to be able to make money on it.

I think the hard knocks of that is probably one of the most important things in starting a business. It is really thinking about, “How am I going to make money and how long will it take for me to get to a point where the company is generating cash and doesn’t require additional capital from me, from my friends and family, from potentially angel investors or others”.

If it does in fact show traction and it is a great idea, then it does make sense to take this idea to another source of capital, like a venture capitalist or other people who are willing to invest if it is large enough, certainly growth equity firm.

Shubha Chakravarthy:  What kind of emerged as you were talking was the idea that initially you do have to have a blueprint that makes sense.

That blueprint has to work, at least in theory because it is tapping a big market, it is tapping an important problem and it is doing it in a way that is attractive to somebody who will pay money for it. That is your kind of your blueprint part.

The second part is if you are early-stage, the more you can translate that blueprint into tangible evidence, the more you can show whether you solve to an employee, a customer, or a partner or a funder, the better off you are going to be and probably the more favorable the terms are that you are going to be able to contract, for lack of a better word, with any of these folks.

The third piece slightly tangentially is all around the importance of cash and the importance of making sure that numbers are always adding up to make economic sense and to keep you solvent in the short term and in the long term before you decide to pick the scale that you want to operate in and therefore figure out how much capital you need.

Is that a fair characterization of what you just laid out?

Pat Hedley:  Yes. I think that is very fair. I wouldn’t normally direct somebody to watch a TV show, but I do think Shark Tank is very informative for anybody launching a company because it is meant for entertainment. There are certain things that are probably a little bit overstated but take a look at the people who actually have a product and they show it to the investors and the investors get to say, “This is something that I think is fantastic, it is going to do really well.”

Or for whatever reason, “This is something that doesn’t make sense at all.” I think that it is very informative in terms of how one thinks about creating a business and starting a business.

If you are going to start a business that addresses the consumer, and let’s say it is a food business, you have to test that. You have to see what is it that you are making. “I’m making a special kind of muffin. Are people going to like it? How much does it cost me to make it? How am I going to distribute it? Am I going to go direct to consumers or am I going to go through the retail channel?”

There are a whole host of complications associated with that. I actually think it is perfectly fine to try something that you may not be an expert in.

But if that is the case, you have to do two very important things. You have to learn as much as you can really fast from people who do know what they are doing, and then you have to rate people around you to help advise you.

So, I’m not saying don’t launch a business where you know nothing about it. It is so much better to launch a business if you do know something about it, for sure.

But if you decide to do something very different, and sometimes great innovation happens when somebody doesn’t know why you can’t do something. They can be incredible innovators, but they better find people who do understand all the pitfalls and have done a bunch of things going forward.

I’ll give you one example. I met two young women. I invested in them, and they were fairly early. They wanted to develop very comfortable modern women’s flat shoes. They had not created shoes before in their lives, but they found people who did.

They had a very specific idea of what they were going to do and how they were going to do it. They had an incredibly smart business plan. They were very focused. If you asked them, “What else are you going to do?” Some people might have said, “Oh, we’ll do handbags, and we’ll do clothing.”

No, they were focussed on one thing, just shoes. This company has been in business for six years. They have developed an unbelievable brand. I’m super proud of these two young women. They run margauxny.com and they make a whole series of beautiful shoes now, but they started slow.

They built up, they got some angel funders. I was an early funder, an unusual early funder, but why did I fund it? I totally understood that they were trying to fill a specific niche within the market, and I was very impressed by these two young women.

Shubha Chakravarthy:  Amazing. That is a great story and I’ll definitely check out the website. margauxny.com is what you said, correct?

Pat Hedley:  Yeah. Margaux NY.

Shubha Chakravarthy:  You talked about having all your ducks in a row when you go out to raises funds, which means that the market is going to be a big factor in terms of how you come out of all of this.

Last year was a great. I should say 2021 was a great year. In 2022, you started to see things going downhill and now it is a really different market than what it was two years ago. So, my question is, if you are a founder who is looking to raise funds, to what extent does the market play into this?

The part that I don’t understand, and maybe many other founders don’t in early stage is that you are relatively speaking pretty far from an exit, and presumably your investors, especially venture capitalists, have a lot of dry powder because they do understand that there are multiple rounds that may be needed.

They might want to participate in follow on rounds and stuff like that. Can you help us understand why the market is such a big driver and what you as a founder should do when you have no control over what is happening outside, you only control your business?

Pat Hedley:  Sure. Well, the market is an indication of how confident people are. I think there is always money out there, but people are sometimes reluctant to invest that money because they are worried about what the economy is going to do.

They’re worried about what other opportunities there might be out there. They’re worried, and sometimes, they’re concerned about the value of some of their other investments.

So, there are, I would call it cautionary times from an investor’s perspective and more aggressive times. But there is capital out there. There is capital available to be invested. The question is, are people being more selective or are they being a little bit more open-minded?

If they are being more selective, then it is much harder to get access to that stream of capital that if they are being open-minded. Then there is more access to it. So, I think we are probably at a time when people are being a little bit more selective because they are worried about the economy.

There may be businesses that will probably suffer in this economy and therefore, may not be able to get investment as easily unless they differentiate what they are trying to do.

Unless they find ways to say, “I’m going to take advantage of this dislocation and that is why you should be investing in me.” Regardless of what is happening in the market, you have to be very thoughtful about how it is impacting your business and your story and why it is better or worse for you.

Even during the Covid period, there were those businesses that suffered, like travel entertainment. I could name many. There were also those businesses that actually benefited in some ways, like Zoom, for example.

We could have just as easily had this conversation by Zoom three years ago and most people didn’t because of the dislocation that occurred, and all sorts of things happened. Furniture for home offices took off during that time because people had demand for it. Renovating actually took off because people were home.

So, it depends on what is happening out there and how you take advantage of it, whether you are in a good position to take advantage of it. Airlines were in a pretty bad position when Covid hit and people weren’t traveling, so they had to figure out what to do.

Now we are at the opposite end of that, and they have to find out how do they meet demand because people are starting to travel again.

So, it depends on where you are in the cycle, what you are doing, and how you can react to whatever the external factors are. It all comes back to building a very solid business and having a rock-solid planted cash, regardless of what happens. It is going to push you in a better position no matter what.

Shubha Chakravarthy:  That brings us pretty naturally to the process of getting money and how the whole investment process takes place.

Can you give us a high level of how an investor looks at early stage now? What does a pipeline look like? How do they source deals? What should a founder know about how investors source, and look at these deals at a high level, and then we will dive into the specifics of the process?

Pat Hedley:  Let me just give this other little feedback related to investors, and I always find that in life it is good to put yourself in the shoes of the person that you know you are trying to negotiate with or deal with. Investors have many objectives, but to make it really simple, they have two objectives.

One, don’t lose money. They really want to make sure that if they give you money, that you are not going to lose that money and you are not going to go bankrupt. So, that is one thing they are really trying very hard to solve for. That is the risk management part.

The other piece is that they want to make money, right? If you make some return on that money, it is certainly better than losing the money. If you make an incredibly great return on that money, that is wonderful. That is the goal. That is what you’d like to achieve.

The venture capital model is a little bit different than the growth equity model. In the venture capital model, they are willing to invest in 10 companies because they believe it is going to be an incredible home run.

In fact, that will not be the case. They might be right on one of them. It is a little bit like throwing darts at a dart board. If one of them is an incredible home run, then it is okay if the other ones don’t do so well because that one will take care of everything.

Growth equity investors think about it differently. They actually would rather throw fewer darts and have them hit the board than not.

They would rather put money in and not lose money. Not losing money is an important part of the thesis and they want to work with those companies to be able to make some return over time, to make some money over time.

So, understanding the investor’s perspective is very important from a founder CEO’s perspective. You have to understand that when you are dealing with a venture capitalist, they are going to be looking to see how are you going to perform so that you can do really well, and what is the case for that? Does it make sense?

Sometimes earlier stage investors may not have such a high bar – that they want it to be a unicorn or a billion-dollar company, but even in those instances, they don’t want to lose money and they want to find ways that that money is going to be spent well and spent wisely creating a business that has some value over time.

So, that is a good mindset to remember and therefore, investors really like it when founder CEOs are vested in the business. They like to see it when you put your own money in, they like to see it when you know you have total commitment to the business.

They actually like to see individuals who have gone through hardship because one of the hardest things in running your own business is that it is practically guaranteed that you are going to have hardship.

So, if you can prove to an investor that you are the type of person who is going to run through mountains and really work hard to make sure that your business succeeds and if you in fact are that person, because authenticity I think is incredibly important, then I think you have an advantage.

Then you are going to be able to attract somebody who is going to say, “You know what? I believe in you. I’m going to bet on you and I’m going to help you succeed.”

Again, how you position yourself, who you are as a person, all of that really matters in terms of how you embark on building a business.

The investor is going to be testing for that. They are going to be testing to see, “Do I feel comfortable that this person is going to be a good steward of my capital and they are not going to lose it.” Not only that, but they are also going to help me make money over time because it is the risk that I’m taking.

Shubha Chakravarthy:  There are a couple of things here that I want to talk about. In tactical terms, say that somebody gets introduced to you. Let’s say it is a woman or a woman of color, and there is an idea. What happens next? What is the first thing you look at?

What is the second thing you look at and how do you balance the intangibles of you looking me in the eye, for example, and then looking at my business plan, and especially where there are some possibilities of bias, whether explicit or not. How do you see the dynamic playing up?

Pat Hedley:  It is a really good question. Look, I may have a different perspective on this than other people, but I actually think when an investor recognizes a really good business and a really good business idea that is being promoted by somebody who has a lot of experience and has the capability to launch and execute on that business, I think people get enthusiastic.

I think there’s a little bit of colorblindness when it comes to that. If you have an incredibly great business and you are perfectly the person to do it with the right background, with the right advisors, and with the right team, I think people are willing to sponsor that. I certainly am.

To me, it is much more about the product market fit, traction, and the background of the individual and what they are attempting to do, and whether, I believe they have the two most important things that a founder has to have – perseverance to be able to go through difficulty because it is hard to be an entrepreneur and resilience and the ability to learn and change over time because there is no question that whatever you think you are going to do at the very beginning, it is going to be changed and adjusted and evolved over a period of time.

So, that is the judgment that you make and a lot of it from an investor’s perspective is pattern recognition. Investors see lots and lots of entrepreneurs. They hear lots and lots of pitches. They can make some judgment. “Is this person someone who I really believe in or not?”

Then they also in general have some idea of the product and the people, the market, and the other competitors within the area. So, any sophisticated investor has done a fair bit of work on, “Who else is doing this? What is differentiated? What about what I’m looking at now versus what is already out in the marketplace?”

If it is truly unique, they will go that extra step and say, “Let me talk to your clients and customers. Let me see the product. Let me get some idea of how quickly sales are increasing.”

If you have a website and you have marketed the product on the website and you could show month to month increases, then that is compelling.

You need to be able to show some of those metrics to make the case. It is hard just saying, “I have a great idea. I’d like to get funding.” I think that is very hard to do in almost every market. You need a lot more effort and work in order to get it.

Shubha Chakravarthy:  Couple of questions on that one. You talked about pattern recognition. I’m going to pressure test that just a tiny bit. So, pattern recognition has two sides.

There is a bright side and a dark side, right? If I don’t come from Stanford, there is a pattern recognition ding against me.

The flip side to that is – you talked about perseverance and the ability to handle adversity and resilience. What does it look like to a typical investor in terms of what they look for in a typical founder? What are the domains in which I, as a non-traditional founder, can come to you and say, “I might not look like a Stanford CS graduate, but here is how I can demonstrate to you that I do have those qualities you are looking to check in terms of perseverance and other such attributes?”

Pat Hedley:  I think you are totally right. I do think that in certain places, having the right educational degree may be something that does impact decision making. I actually think from my perspective, it is more about experiences and it is more about surrounding yourself with the right people.

So, if someone comes to me and says, “I have this great idea. I’ve been working on it totally by myself, and I think it’s going to work.” Then that is very different from, “I have this great idea. I have a series of advisors who have been helping me on it. I have some clients that I have tested this with.

Oh, by the way, I’ve actually launched two other businesses, none of which may have become unicorns. But let me tell you what I learned in each of those instances. Let me tell you what I’ve learned from my past experiences, whether they are successes or failures.” I actually don’t even like the word failure. Everything is about learning. If the company didn’t do well, what would you do differently?

Now, what did that experience teach you to make you a better founder or CEO, and interestingly, a lot of people who are successful have had failed experiences prior to their success.

So, I actually don’t think that is a negative at all. If you have run one or two businesses that haven’t done well, I actually would prefer to invest behind somebody who has had those experiences as long as they have learned from them. If they are going to make the same mistakes again, I actually don’t want to invest behind them.

But if they are launching their third company and this time they are doing it in a different way. They know what they did wrong, they have the right advisors behind them, they are smart about product market fit, then that to me is much more compelling, and then I care less about what their education is because there are so many entrepreneurs who haven’t even completed their education.

They are just natural entrepreneurs. They love running businesses, and that to me says a lot. That is the pattern I like to see.

Shubha Chakravarthy:  It sounds to me almost like for all of these qualities, the questions that are invisible in the investor’s minds, it’s on the entrepreneur or the founder to say, “Let me prove to you with what is tangible. Here are my customer orders”, or “Here are the sales for the last six months and here are all the things from my background that you may not see on my face that should give credence to whatever I’m telling you that I’m going to be able to pull off.”

Pat Hedley:  I think that is exactly right. I think there are people who have had terrible hardships. They have come from another country. They grew up in surroundings where they didn’t have advantages and they have struggled through that and they are super hardworking and they are incredibly resilient and if there is an obstacle thrown at them they will say, “Fine, I’m going to get right through that obstacle.”

That to me is a compelling story. I think that hearing about experiences like that makes you think this person is not going to give up, and you need to solve for that.

Shubha Chakravarthy:  It sounds like it is almost okay to be able to bring in those personal stories. You hear different theories on that to say, “Stick to business”, especially if you are a woman or you come from a different country or culture, whatever.

Just say, “Demonstrate that you can talk the talk and you can walk the walk and don’t bring in anything extraneous versus. Bring all of who you are, especially, to the extent it is relevant to the story you are telling.”

It sounds to me like you are ranging on the side of, “If it is relevant, pack it in and make sure you show them why it makes sense and why it makes you a more investible founder and a more investible business.”

Pat Hedley:  That is my perspective. I do believe in that. I do think it is about the individual and I think it is hard to fully understand how a person is going to behave in the future unless you have some sense of who they are.

I think it is incredibly important to be authentic. I do think that there are certain qualities that are incredibly important as a founder entrepreneur. If you can demonstrate those, it helps make your case.

It is perseverance, resilience, fearlessness, curiosity, and an ability to get help when you need to get that help. Nobody does this alone and I think those people who are resourceful in that way have an advantage.

I actually think those people who have good networks and are willing to find people to help them have an advantage. Those people who are talking to funders well before they need funding, talking to employees well before they need to hire them, talking to customers and clients all the time, because you should be doing that for sure.

But you have to have these conversations so that you know where you are going. A metaphor I like to use –if you are going on a road trip, you need to know where you are going and it is really helpful if you say you are going from New York to California but are you taking the Southern route? Are you taking the northern route? How many days is it going to take? How much money is it going to cost? You have to plan out all of that.

Those people who can say, “I’m going from New York to LA. I’m taking the southern route. I’m going on this highway, and it is going to take me a month to do it. These are the stops I’m going to make and by the way, investor, who I don’t need quite yet, I am going to tell you when I’ve hit those stops, just like I said I would, and I like talking to companies early so that they can tell me what they are going and I could check in with them and see if they actually did what they are going to do.”

If in fact they get to Colorado and there was a huge snowstorm and they were delayed by three days and they said, “Oh my God, there is a huge snowstorm. I’m going to be delayed by three days. That is the reason I didn’t make it.” I get that. You can’t control the weather.

Knowing it, planning for it, being mindful of it, all of that is super important and that is why developing relationships with people who could fund you, telling them what you are going to do, and then saying, “I talked to you a quarter ago and I told you I’d have three clients by now, I have four and there is real traction here. I’m really excited about it. I’m going to give you another update in another six months. I think I’m going to roll it out even further.”

Then, I’m starting to feel good as an investor or a potential investor. I’m going to say, “When can I invest because you are doing what you said you are going to do.” These are simple ways to think about it, but I do think it is really effective for founders to hear this.

Shubha Chakravarthy:  I’m going to come right back to that because there are a whole bunch of questions I want to ask you about building networks. So, hold that thought for a minute. I do have a couple quick questions on the funding process itself.

One of the things you mentioned earlier on that was this question of risk, this concept of risk, and how important that is from an investor standpoint.

So, you are looking to de-risk any startup proposition or an investment proposition as much as possible so that you can minimize the risk and maximize the return.

How should a founder think about these dimensions of risk and what are intelligent and effective ways a founder can deploy or think about to help the investor understand that the risks have been a understood and identified and mitigated?

Pat Hedley:  I think that is the question that a founder should be asking themselves too, “How do I do that?” Back to what I said, first of all, the biggest risk is this is too small of a market that even if they were to launch this product, it is never going to be big. There aren’t enough people who are truly interested in this.

So, you have to mitigate that risk right up front. Is this big enough? Will there be enough customers and clients who are super excited about what you are doing?

Then, is what you are doing different enough and differentiated enough that you can actually penetrate the market? Say you are making muffins, lots of people make muffins. What is special about your muffin? What are you going to do differently that is going to make it appealing?

So, you have to then mitigate that risk and one way to say is, “Look, Mike, I am sold out of these muffins every day. I double the production and I’m always sold out. I triple the production and I’m always sold out. That tells me something. That tells me people love these muffins. So, let’s get a bigger facility. Let’s produce more of it. Let’s get it out to people. There is something super special about these muffins.” Makes me a little bit more confident.

Then, what else are you doing? Your production facilities in making these muffins? Are you doing it? Is somebody else producing these muffins for you and you are just reselling it? If so, what are you dependent on? Is it one factor? Is it multiple factories?

Then what are you actually making on these muffins? Do you have to sell a thousand where you are making some money, or do you have to sell 10,000 where you are making some reasonable amount of money?

Are you going to get tired of making muffins and move on at some point if all of a sudden people aren’t buying muffins and they are buying something else, like donuts? Is it easy to move into donuts if that happened because your clients might get bored of buying just muffins every day. They might want other things.

What else could we be selling? That same customer who already loves us and knows us and is telling everybody about us? You haven’t even spent on marketing because people are talking about what you are doing. Honestly, you are in a wonderful position if that is the case and if your product is loved so much that it is not costly to have people know about it and spread the word.

Shubha Chakravarthy:  So, you have laid out all of these very clear and discrete risks. Let us say here is risk one, risk two, risk three. For an outstanding founder, for someone to really impress you and say, “Hey, this person knows their stuff.” How should they communicate the risks as well as the mitigation plans?

Pat Hedley:  I think this question is even more about communication as opposed to what you are communicating. I think the single most important thing that a founder can do and to practice in front of other people is the elevator pitch on what the product and service is, or what the company is.

It has to be short and sweet. It has to be compelling. It can’t have extraneous detail in it. It can have very specific information that somebody who is a layperson might not understand. So, I think the communication methodology is super important.

Even if it’s a slideshow, it has to be really thoughtfully prepared. There are a lot of online resources on how to prepare the very best slides to communicate but I think it is important specifically about risk and opportunity to spend time on it.

Here are the risks, here is the opportunity, and here is how I’m going to be able to succeed. I think simple and thoughtful communication actually reveals a lot about you. It means that you have really thought about it and gotten rid of all the extraneous detail. You are really shooting that arrow right to the target.

So, it is not even like what you say but how you say what you say that really matters. I would absolutely encourage founders to be very mindful about that conversation and what they are communicating and how they are getting ahead of what the questions are from an investor’s perspective.

An investor for sure will say, “What are the risks? How have you done? Where the traction? How are you going to measure it?” Answer those questions ahead and already the conversation will be much farther.

Shubha Chakravarthy:  One last question on that, and then I want to move to networking, which is the fun part.

So, on the question of the model and the opportunity itself, now obviously the financials are a huge part of that. What do you recommend to the founder, and especially women, some of whom, right, wrong, indifferent, I don’t know, but they feel or perceive a fear in terms of, “I don’t want to deal with it.”

There might be a disinclination for the investors to be directing these questions at other people who may not be women. So, what is your counsel on that? How do you master it and how do you communicate on your financials?

Pat Hedley:  Financials and numbers are the language of business. It is important to learn this language. If you do not know this language, you are going to have a hard time communicating with investors who speak this language fluently.

So, if you are going to France and you can’t speak a word of French, you better either have studied it up, have a guidebook with you, or bring a translator. I think this analogy holds for founders. If you are not as comfortable with accounting terms and financial terms, you have two choices. You either learn it or you bring somebody who totally is, and you learn from them, because it is the way you communicate.

You have to be able to communicate what your revenues are and how you look at that. “What are my costs and how do I detail them? How do I look at profitability? What does my income statement look like? What does my cash flow statement look like?”

There are a lot of resources to learn the basics. I think entrepreneurs really have to understand that. So, I will share with you this, my mom was an immigrant entrepreneur, and my mom did not have financial training, but she knew one thing, which is follow the cash and you have to do your service in a profitable way.

My mom priced the work that she did, and she priced it so that her costs were included and there was something left over because that is how she got paid. She never ever had an unpaid invoice because she would show up at her client and ask to be paid.

So, following the cash is super important and it is not as basic as that today, but I think there are certain basic things anybody who is running a business has to know, and that is, “How are you charging for your work? What are the costs associated with that work? How much is left over and how much cash do you have to need? How much do you need to run your business?”

Shubha Chakravarthy:  Your mom is already my role model. Love what she did.

Pat Hedley:  She was my role model too. I learned so many lessons from her and follow the cash is an important one.

Shubha Chakravarthy:  I love it. That is going to be my new model. “Follow the cash.”

Just one last thing. What are the most common mistakes you see women founders make during this process of raising funding or throughout managing the money, asking for money, and growing their businesses?

Pat Hedley:  I think one mistake is not developing some of these relationships early enough and waiting when they are in the process of fundraising, I see that people underestimate how long it will take, because it does take long. They also usually raise less than what they need, thinking that if they need more, they’ll go back.

This is somewhat counterintuitive advice, but I think you should delay funding as long as you can, but never to the point at which you are desperate. Well before that point, raise more than you think you need and expect that the whole process will take longer, then you expect it will.

It is a balance. If you delay it longer, it means you really need to look at your business much harder and say, “How much does it cost? How much can I do on my own until I get funding?”

Perhaps it provides some discipline as to how to price it, and how to service your clients without adding too much cost, which means you are doing a fair bit yourself at a certain point in time when you realize there is market demand and you need to hire more people and it costs money to hire people, then you have to think about how you can fund it and can the revenues that come in fund the business that you’re supporting?

A lot of people don’t focus on when they get paid. One of the pieces of advice I would give for people is to try to find ways to get paid sooner as opposed to later because your clients, if they can fund some of your business, that is a good way to go.

Like I said before, keep in touch with the people who could be potential investors and update them on how you are doing. At the point at which you really do want to raise capital, you already have relationships, and it makes a huge difference because then you can shorten the timeframe to get funding.

Shubha Chakravarthy:  It is a great segue into the next topic. I know that you have written a book, “Meet 100 People”. I bought it and I’ve given it to my son. Loved it. I watched your TEDx talk on building your networks and stuff like that.

So, I’d love to hear your thoughts on that. Specifically for women founders, what suggestions, what advice would you give in terms of building networks, especially if you don’t share affiliations that make it easier for you to get those introductions to talk about things in common?

Pat Hedley:  Look, I think regardless of somebody’s background, you have some affiliations, right? My parents were immigrants, and they knew other people who were immigrants and that was part of their affiliation network, right? Go close at first.

Try to tap those networks that you already have and the communities you already know. There are certain urban communities like New York, LA, and Chicago, where there are lots of resources and there are more people that you can access.

But even in smaller communities, there are existing networks that you can access that can be beneficial to you if you give it some thought.

My first recommendation to anyone as they build their network is to sit down and think, “First of all, what is my current network? Is it the high school I went to? The college I went to? Perhaps the ethnic affiliation that I might have? The neighborhood that I live in? The parents of my children’s friends that I might be able to reach out to?”

Think about that very strategically and then also think about why you are doing this. Who could be helpful to you? What are you trying to achieve?

So, if your goal is to find a way to tap into angel networks, that is your goal, a good way is to see what university affiliations there may be, and it is certainly in large cities and many colleges have investor networks as well. Many places have angel networks.

Many, locations have similar CEO networks or founder networks. Those individuals can be incredibly helpful. You can be helpful to them, and they can be helpful to you. The question you asked them is, “Who did you talk to? Who have you accessed for funding?” In a way, you have to be a little bit of your own researcher in building your network.

The best way to be successful, and I can think of countless stories where people have done this, is go to other people who have been successful and ask for 20 minutes of their time and say, “May I reach out to you and ask you for your advice? I’m on this path. I would like to start and run this business. You are a successful entrepreneur. May I ask you for some advice, on your journey?”

I heard this recently about a very famous pop artist and songwriter who, when she first started out, went to all the other songwriters in Nashville and asked them, “What did you learn? What would you have done differently? How would you have approached your career differently?”

How smart is that to ask other people who’ve been down the path? That becomes a part of your network. So, I highly encourage founders to not think that they are in this alone. Talk to other founder CEOs, business owners, and ask them for their advice and see what you learned in that process.

I fundamentally believe that people are willing to help other people, especially if asked the right way. I fundamentally believe that warm introductions to people are a wonderful way to go. But even a cold call with the right message, with the right intro, can get you in front of people who can be helpful to you, but it will not happen if you don’t do it yourself.

This is one of those things you can’t outsource. You can’t say somebody else is going to do it. These are relationships you need to build, and I also very strongly believe that it doesn’t matter what your background is in order to build these relationships if you do it the right way and you spend the time and effort to meet people who can be helpful to you.

Shubha Chakravarthy:  It actually has paid off in significant ways in my own journey, so that definitely resonates. Thank you for that. One thing I do want to double click on a little bit is when it comes to contacts with investors – you mentioned earlier yourself, that it helps to start building the relationships well ahead of the time that you will need to tap into them.

But I’ve also heard another school of thought that says from some investors, who I follow that say, “Please do not send me unsolicited updates within air quotes on your business. I don’t want to hear it. I don’t want to see it. I don’t have time.” So, given that there is always more demand for these people’s time, than there is supply, how do you get around that?

Pat Hedley:  Sure. If somebody doesn’t want to get unsolicited updates from you, they are not interested. Full stop. I think it is important to separate out those people who could be interested from those people who will not be interested. There are a lot of people who won’t be interested. It is one of those things you have to understand.

The goal is to find those people where you do resonate, where you do fit with what they are trying to do, and they are interested. So, it depends on you to do the research and it depends on you to try not to be unsolicited in that first contact, but to come in warm because I will tell you in my former company, we got thousands of unsolicited updates and there is no human being that can go through those.

So, those were never looked at. But if you come in warm through a referral and somebody said, “You know this person, Pat? I think you should meet with this person.” That is very different. So, the hardest thing to do to get to investors is to find warm introductions or a way to create that warm introduction.

If you have something in common with that person that makes it a whole lot easier. You can make that cold call. You can try to do it without an introduction from somebody else. It is a lot more effort and even then, if they say, “I don’t want to get unsolicited updates, that means they are not interested. They will tell you, “Please give me an update”, if they are interested.

Shubha Chakravarthy:  Okay. Is it fair to say that there are ways to filter potential investors that might be interested? For example, would you use things like the sectors that they invest in, the stage of the company that they invest in, maybe some other investment thesis that says, “Okay, I’m only looking at Nashville. I’m over focusing on Nashville area startups, for example.”

Are those like the breadcrumbs you use? If so, are there other breadcrumbs that you can look out for and be vigilant to as you start building these networks?

Pat Hedley:  Those are exactly the breadcrumbs that you use. So, don’t send your business plan about your consumer goods company to a healthcare investor. It is probably not going to be of interest to them.

Look for sector areas of interest. Look for regional areas of interest. Make sure you understand what size checks they write, and very importantly, study their portfolio companies. Look at the other companies they have invested in because that gives you a clue as to what they are interested in, because they have invested in them.

If in fact you see that this particular company is a foods investor, then they have invested in a drinks company, a chocolate company, and there is no muffin company there.

Say, “You are a foods investor. You understand this consumer. This is the consumer I’m targeting. I have this incredible product that I am selling out of all the time. I would love to tell you about what I’m finding in the marketplace and how I’m doing as an introduction.”

You probably have a good chance of having a conversation there.

You should also have done your homework, have looked at the other portfolio companies, perhaps you even know one of those companies. Perhaps you can reach out to one of those companies and say, “This is an investor that I think would be perfect for my firm. What has your experience been with them? Is this an introduction you can make for me?”

Those are all valid things to do. They do require effort, they do require time, but that is it. There is no other way around it. This is a little bit of a time-consuming project, and you have to do your research to be able to get to the right people.

Shubha Chakravarthy:  Which brings me to another related point, which is, you also need networks to source great employees.

You need networks to source customers, especially if you are a B2B, or even otherwise, at least your early adopters. How do you suggest that founders optimize the time they have?

Clearly the work is needed, but there are only 24 hours in a day. How should they optimize their networking efforts so that they can, first of all, contribute back to their networks in some way, because obviously it is around the theme of their business or whatever?

More importantly, try to get access to more of these kinds of folks, stakeholders, for lack of a better word, when they do need them in the right kind of people. What are the additional things you’d recommend?

Pat Hedley:  Sure, look at the beginning. I think it is incredibly important to focus on customers and clients. That is probably the single best use of your time as you get to be a larger business, and you can allocate people within your firm.

If you’ve hired people to spend time doing things that you no longer need to do, then you can do things. You will have to be the individual that spends time on, raising funding or even on hiring people.

I think your point was a really important one. The scarcest resource any one of us has is our time and prioritizing where you spend that time is a single most important activity that you can possibly have.

You have to really think about your calendar and the time you have on your calendar and where should that time be spent and what is the ROI on that?

So, there is some return on that investment that won’t pay off for another six months or nine months, and yet it is very important to do. There are some things that you do day to day that you shouldn’t be doing, somebody else should be doing it instead.

Prioritizing that and figuring out who is the best person to spend time doing whatever it is, is a single most important thing a founder can do at the beginning.

They are doing it themselves. As they continue to grow, they are finding people to take on those things that they shouldn’t be doing anymore, and they should be doing other very high value things like capital, dealing with customers, and hiring new people.

Shubha Chakravarthy:  So, to round all of this up, what kind of top five takeaways would you give to a founder to start working on or reemphasizing tomorrow morning?

Pat Hedley:  Top five things. I think I probably would start with prioritizing because again, that is your scarcest resource. I would very much focus sometime on networking and building the network. So, find who else can help you because that is a hugely important thing. You are not going to be able to do this all by yourself much as you wanted to.

There is not a single unicorn company I can think of that is run by one person. So, who else can be helping you? Top three clients. Customers are really important to be in front of clients and customers and constantly having that iteration in terms of what you are doing after clients and customers, it is going to be people who work for you, who is on your team, who is helping you, broader than the network, very specific to your company.

Who are you hiring? How are you thinking about it? Frankly, if I were to pick a fifth, I would think very hard about what is the culture you are trying to create with your organization? What is the why? How are you going to create this? How are you going to make this something that you are really proud of and that you are excited to go out and market to not just customers and clients, but investors, as well.

Shubha Chakravarthy:  Excellent. Thank you very much. Pat, is there anything that you wish I’d asked you, but I didn’t?

Pat Hedley:  I think you asked, a ton of questions. I think I answered the one that I think is a really important thing to answer, which is what is an important skillset on this.

Look, being an entrepreneur is hard. There is no question about it. I think it is incredibly important to acknowledge that this is not an easy path. It has great benefits that you can reap over time but are there going to be ups and downs? To be aware of the fact that there are going to be ups and downs is hugely important.

Then I think having the commitment to bear the storms, the terrible storm in Colorado because you are getting out to LA so you either stop for a while until the storm clears or you march through with snow tires on slow gear to be able to get through it.

But you don’t give up, right? You don’t say, “I’m not going to continue to do it.”

So, I do think that if you know that you are the kind of person who will not give up and that is excited about new opportunities, and I think you can be a great entrepreneur and I love working with entrepreneurs.

I do think they are fantastic people. For those of you out there who aren’t entrepreneurs, I wish you all the best on that journey. I’m sure it is going to be a great one.

Shubha Chakravarthy:  Fantastic. Thank you Pat. You have been extraordinarily patient and helpful, and informative in helping us understand the challenges that rewards the questions and the key skills. So, I really appreciate your time and thank you very much. It has been a pleasure talking to you.

Pat Hedley:  You are most welcome. I enjoyed it!