What Investors Want To Know About Your Business Connections?

Connections up, down and across the value chain are important to investors for a variety of reasons. In the short term, your connections with potential customers, especially large or strategically significant ones, enhance the likelihood that your new venture will meet its revenue targets. Connections up the value chain – with suppliers – enhance the likelihood that your new venture will be able to obtain the inputs it needs at favourable costs and on favourable terms. Connections across your industry will enhance your understanding of the competitive situation that your venture will face, helping you differentiate and position your products in ways that will stand apart from those of your competitors. These short-run roles are important, and investors will want to know how your team measures up on such connections.

In the long term, however, the value of connections like these is more subtle, perhaps, but extremely important, especially in changing markets. Investors know from experience that most of the money they’ve made has been made from plan B, not from plan A. ‘Surprises are not deviations from the path. Instead they are the norm, the flora and fauna of the [entrepreneurial] landscape, from which one learns to forge a path through the jungle’, says Saras Sarasvathy, based on her research into entrepreneurial decision-making. But there’s a problem here, because when an investor decides to invest in your venture, they do not really know what plan B will look like. How can investors insure themselves against the risk that your plan A will not work and that you might not come up with a suitable plan B? The best answer? Your and your team’s connections.

Without such connections, you won’t have the market and competitive information that you’ll need to revise your strategy when the need arises, as Virata was able to do at a crucial juncture but as DEC was not. You won’t be able to take advantage of a favourable change in market needs that could benefit your venture substantially. You won’t have the ability to judge quickly – and quickly may be important – which of several alternatives to a failing plan A ought to be your plan B. These are crucial investor concerns that will influence their view of the attractiveness of your opportunity and your entrepreneurial team, because they reduce the risk that your venture will fail. These concerns should be of similar concern to you.