Alignment, what we mean by it and why it really matters

Let's define what we mean by Alignment

Alignment, in the context of entrepreneurship and angel investing, refers to the shared goals, values, and expectations between entrepreneurs and the investors who support them. It is a crucial factor for the success of a startup and for building a strong, long-term partnership between these two key stakeholders.

Alignment for you, the Entrepreneur

For you, alignment is the process of ensuring that you and any investor in your company are on the same page in terms of vision, values, and objectives. When you started your company, you typically had a very clear and highly focused sense of the product or service you set out to create, your target market you aim to serve, and your medium to long-term aspiration for yourself and your company. However, this vision is only truly viable when it is supported by investors who understand and support all of your ambitions.

You also seek investors who bring more than just capital; you hope for partners, supporters who share your values, understand the industry, and are willing to provide guidance and mentorship. Critically they should share your moral outlook too. The importance of alignment in this cannot be overstated: when you are fully aligned with your investors, there is a close working relationship, better decision-making, and a unified approach to problem-solving. Misalignment, on the other hand, will cause friction, distress stress, and inevitably, failure. For example, if you hold social value impact in high regard, but an investor prioritises rapid profit generation, then the differing goals will lead inexorably to tension over tactical and strategic decisions like pricing, expansion, or corporate social responsibility.

Alignment also extends to understanding the investor's expectations regarding growth and exit strategies. Some investors may want to see a quick exit through acquisition or IPO, while others may be more patient, preferring to let the business mature and scale organically. Their expectation of what their investor's journey is must be understood at the outset. Fail to do this and it will draw you apart from each other. You must also communicate your vision very clearly to ensure that investors are fully aware of every aspect of your plan, every twist and turn of their journey, and that they are fully on board with the timeline and approach that best suits your business.

Alignment for your Investors

For angel, or venture investors, alignment means identifying entrepreneurs and ventures that align with their own investment philosophy, risk tolerance, and goals. Many investors in venture are not merely financial backers but are actively involved in the success of the companies they invest in. They often bring expertise, networks, and advice to the table. For these investors, their alignment is about more than just financial returns; it’s about being involved in ventures that resonate with their personal interests or expertise. For example, an investor with a background in SaaS tech may prefer to invest in tech startups that align with their knowledge and passion and identify and overcome obstacles they have previously seen.

Venture investors also seek alignment in terms of the entrepreneur’s ability to execute their business vision. They want to ensure that the entrepreneur is not only driven and motivated but also capable of navigating the challenges of building a company. If the entrepreneur’s vision and values align with those of the investor, it’s more likely that the investor will be willing to provide mentorship and leverage their network to help the business grow. I will touch on the challenges of taking funding from venture fund managers in another blog, but just let me say that understanding their investment mandate and how you fit into that is even more crucial, and challenging for successful alignment.

Finally, alignment also extends to the investor’s expectations for return on investment (ROI). Angel investors often operate on a higher risk-reward basis, but they still want to ensure that they’re investing in ventures where their involvement will create tangible value, either through financial gain or personal satisfaction from helping entrepreneurs succeed.

Conclusion

In summary, alignment between you and your investors is fundamental to the success of a startup. For you it must mean partnering with investors who share your attitudes, values and beliefs. For investors, it involves backing ventures that align with their expertise, risk appetite, and investment goals. When alignment exists, both parties are perfectly positioned to navigate the challenges of growing a business and, ultimately, achieve mutual success.