When you meet with investors, your first instinct is simple – Close the deal and cash the check as quickly as possible. After all, start-ups need money and investors have it, so why do anything other than convincing them that your business has a lot of potential and needs funding? Why decide what’s important in an investor at the very outset?
Well when you onboard an investor, that institution or individual becomes part of your cap table, and it’s for the long run. Deciding what’s important in an investor at the outset helps the founder streamline the process of filtering and screening while empowering them to make good decisions.
Finding the right investor is about finding someone who believes in your vision, understands the challenges ahead of you and has the business acumen to help you succeed. The best investors are the ones asking you, “What’s the potential here and what will it take to nail it?” rather than harping only on “How much capital do you need to execute your plan, and when will I get my return?” with a parochial approach.
Therefore, it is crucial to understand that an investment round is not only the investor choosing the start-up to invest in, but also the other way around.
The most important factor in choosing the right investor is that you’re both following the same goal. Here are a few points that could help you decide in choosing the right investor for your start-up:
1. Experience vs network:
Understand the options: Do you need a bigger network? More expertise? More money? All three? Can you prioritise?
Different investors can fulfil different goals.
If you already have strong operational experience in your area, then it might be a good idea to look for an investor with strong connections to potential follow-on investors or strategic partners.
If you are a first-time founder, you could look for a combination of entrepreneurial and investment experience in an investor.
If you have already founded a couple of start-ups before, it would be great to have an investor with industry know-how and network.
The most important contributions an investor can make are related to the know-how and network, which will be direct outcomes of their background.
The right investors will have extensive knowledge on how to scale companies the right way, either because they have first-hand experience from their own start-up as a founder or because they have already successfully supported many companies as an investor.
Many investors will insist on some level of involvement in your business operations in order to protect their capital. Depending on the stage of the business, they may want a seat on your board or will expect regular and timely updates and financial reports from you. Smart entrepreneurs will however regard investors as their partners and collaborators in building more successful businesses. You essentially want investors that you look forward to working with and whose advice and guidance you are willing to listen to.
Start-up CEOs and founders tend to be on the receiving end of the questions when meeting with potential investors, but founders should start asking more pertinent questions as well.
Consider a couple of key questions – “What role do you wish the investor to play for your company? Does the investor want to be involved in day-to-day operations or be more hands-off? How does the investor’s vision for the company differ from yours?”.
In the end, the perfect investor should complement you in areas that you are not strong in – Find an investor that will simply be a better match – the one that is right for your company.
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