As a founder of a startup, you know that receiving funding is
the lifeblood of bringing your idea to life. There is a
diverse range of options available, and you should carefully
consider each one before making this critical decision that
could shape your company’s future. One type of backer that you
should consider is looking towards an ex-founder of a startup.
Ex-founders aren’t necessarily ex-founders because they were
unsuccessful. Their startup may have failed for several
reasons or could have been bought out. If they did fail, it’s
not an accurate assessment of the value and wealth of
knowledge and advice they can contribute to your startup.
Ex-founders know the ins and outs of creating a business from
the ground up. They have vital insights into what works and
what doesn’t. Often, after they’ve moved on from their
startup, they’re looking for their next opportunity in a
potential up-and-coming startup.
Ex-founders are often considered angel investors as they
usually invest their own money. They have also been known to
join a venture capital firm to partner with other individuals
in their industry when they want to move forward with
investing. There are differences between the two, but overall,
the benefits of hiring an ex-founder can help you make smart
business decisions and lead you to a successful startup. This
article will go over the 5 reasons you should get funding from
an ex-founder and where you can find them.
5 Reasons to Get Funding from Ex Founders
All startups need funding to grow and thrive in their
industry. Often ex founders will fund startups in exchange for
a return of equity or profit sharing. Here are the 5 reasons
why you should consider partnering with an ex-founder for your
1. Easy to Get Approval
– If working on their own, ex-founders are freer to invest
their money in startups they connect with and see the
potential for a high-value return. They are also not afraid to
take a risk and are more at ease with taking on your startup.
Not only is it easier to get approval once you can prove your
startup has high potential, ex-founders know the importance of
getting funds to you quickly. They will traditionally move
much faster than other means of investors or banks.
2. Access to Expertise
– Ex-founders have been through many stages of a startup,
sometimes multiple times. They have experience in the industry
on how to get a startup off the ground. Ex-founders have tried
and failed through many techniques and business ideas. This
kind of experience is invaluable to new startups. It can
benefit from having an ex-founder on their side to help with
advice through major business decisions and help you avoid
roadblocks and pitfalls that many startups experience.
3. Flexibility and Independence
– Ex-founders, while they invest in making a profit in one way
or another, they often offer more flexibility than if you were
to go with another type of investor. Many investors may demand
more stake, control, or be more demanding of the business
decision directions. With ex-founders, you want to be sure to
have an exit strategy set up for them, so they know when to
expect their return on their investment.
4. Funding is Not a Loan
– Funding from an ex-founder operates differently than
receiving funding from a bank. Ex-founders operate as
individuals who partner with founders to provide funding in
exchange for stake or profit sharing. You won’t need to pay
the money back monthly or annually and the investor receives
the funds when your startup becomes profitable. If your
startup fails, ex-founders write it off as a loss and don’t
expect you to pay it back.
5. Higher Odds of Success
– With an ex-founders financial backing and expertise in
running a startup, you will have higher odds of success. With
angel investors, they can serve as mentors and are likely to
help you create and build a sustainable business model that
keeps your startup running for years.
What are the Drawbacks of Funding from Ex-Founders?
You need to consider any drawbacks of all types of investments
when looking for the right type of investor to help you
succeed. Understanding what could go wrong could potentially
help you avoid costly mistakes that can end up causing your
startup to fail.
You May Not Have Full Control
– While there is flexibility in working with ex-founders,
there is the potential that they will want a more hands-on
approach considering the sizable investment they make in your
startup and the potential stakes. Even if they do allow you
more control over your company, you may have to provide
reasons and examples for every decision you make. Before
working with an ex-founder, understand they were once in
control and will likely want to be a part of every decision if
it’s just to provide an understanding.
You Give Up a Percentage of Your Company or Profit
– While most investors will expect some sort of return, and
you likely won’t be required to pay back the money received
from an ex-founder, they do expect either profit sharing or a
percentage of stake in your company. You’ll want to carefully
assess any offer and weigh out the pros and cons before moving
forward with an ex-founder as your investor.
– Because an ex-founder has been in the startup business, they
may expect more from you and your startup. They want to see a
return and usually want to see good scalable growth within
your startup within the first at least five years. Sometimes,
that pressure can put a lot of stress on you as a founder and
Where to Find Ex-Founders to Get Them to Invest in Your Startup
After you’ve evaluated your funding options and created a
pitch deck to secure funding, it’s time to start connecting
with ex-founders to invest in your startup and give you the
mentorship you need to get it off the ground. With any
startup, you’ll want to look for investors that have previous
experience in your industry. You’ll want to know where to look
if you’re not already connected.
Venture Capital Firm
– Often, ex-founders will join venture capital firms to put
their money to work with other individuals in their previous
industry and provide funding to startups and small businesses
with big potential to grow fast. They are a group of
individuals, not always ex-founders, but come with a lot of
knowledge and connections that can help your startup grow.
– Ex-founders are often called angel investors and are among
groups of high net worth individuals who prefer to invest
their own money. Angel investors are not just ex-founders but
can be from a variety of backgrounds with different levels of
experience. Usually, they will inform you or you can find
information that will provide insights on their previous
startups and if they are ex-founders.
Finding angel investors may be one of the easier tactics to
find an ex-founder among them. Several hundred angel investor
networks through the Angel Capital Association, AngelList, or
Angel Investment Network can provide resources and connect you
with a potential investor.
– Build connections by utilizing the power of LinkedIn to find
ex-founders within your industry. You can connect with angel
investors who have a similar background, who had similar
startups or are connected to others you may want to be
Use Your Connections
– If you are lucky enough to know people within your industry
that can connect you with ex-founders, it can be one of the
quickest and most efficient ways to secure funding through a
partnership with an ex-founder. You can arrange a meeting much
faster through your original connections than if you started
Although receiving funding from an ex-founder can be
beneficial for your startup, ex-founders often find their
calling in mentorship. You can receive valuable insights,
ideas, recommendations, and resources from ex-founders who
have done the work and seen the results. If you choose to go a
different route for funding, locating ex-founders can still
provide you with a valuable resource that may contribute to
the success of your startup.
Working with an ex-founder can be beneficial in helping you
find success in growing and building your startup but it may
not be for everyone. There are a lot of funding opportunities
that have their own benefits that may work better for your
needs. Be sure to do your research in your industry and make
decisions based on what will bring you the most value and
offer the best return before you bring on an ex-founder.