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 startup.

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.

Higher Expectations

– 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 your team.

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.

Angel Investors

– 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.

LinkedIn

– 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 introduced to.

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 at nothing.

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.