5 crucial steps to choosing an investor
However, what they should also be thinking about is everything else that the potential investor can offer, and how they can affect the company in the future. Imagine you have five investors that want to pitch in – this guide will help you choose which investor is right for your business, and also highlight what to look out for.
If you haven’t put together your pitch and deck yet to attract investors, you need to read the comprehensive guide on how to create a killer pitch, as there are some really valuable tips in there. Even if you’ve already put yours together, don’t miss out on the priceless tips available to make sure you give yourself the best chance of securing investment.
So, what should you be considering when looking at investors:
1. What else do you need?
Chances are, there are things beside investment that would be useful to you. Think of things like a bigger network, some specific expertise or simply someone who believes in you. What is slowing your journey to success? Once you’ve secured the money, these are the things you’ll be looking to address, so why not kill two birds with one stone!
It’s always preferable to find an investor with some knowledge of your industry or business model, because you never know when you’ll need some advice. Particularly if they have a proven track-record of helping businesses like yours, or a positive history of running them, you’ll find their advice invaluable.
Consider what type of investor suits you best too. Angel investors usually require less from you initially, which is much easier for you as a start-up, but they also tend to have less resources than a venture capital firm. If you can put together a rock solid business plan, with hard facts and data to back up your plans, you may be better off approaching a VC because they have plenty of help to offer you beyond just the money.
2. Find someone you get on with.
When you need to find money to get your business going it can be easy to forget that you are not just taking a cheque, you’re finding a partner. This person will be part of your business and your life for a long time, so it’s important they’re the right fit.
Things to ask yourself when considering if you like an investor:
- Do they give real, honest and actionable advice?
If you brush off their advice, or don’t find it useful, they may not be someone you want to align yourself with long term. You might find conflict down the line if you don’t follow their advice.
- How involved and hands on do they want to be with your business?
They might think that they will be involved in the day to day running of your business, but you see them as more of a ‘behind the scenes’ investor. This can cause some serious clashes, so make sure you know in advance.
- Do they respect you as much as you respect them?
Usually investors are respected businesspeople with a great track-record, so it’s easy to feel intimidated by their success and forget that they should respect you just as much. When you are making business decisions together, they need to respect your thoughts, vision and ideas as much as theirs.
- What’s their overall vision for your company? Is it different to yours?
The investor may have an overall vision that is slightly different to yours, which can be a good thing. They have experience and expertise, and as long as you discuss it you’ll be fine. However, if they have a vision that cannot fit with yours, you won’t both be working towards the same goal which can cause major rifts.
- Do they hold similar values to you? Would they fit in with your ‘company culture’
You see plenty of hipster start-ups today, because it is a world where you can live your values and have a company culture that fits with you – not just what is expected. Your investor doesn’t have to fit exactly, but they should be along the same lines as you, otherwise you may find agreeing and decision making gets tough further down the line.
- And, always a good test: If you were stuck in a lift with this person for hours, would they drive you nuts?
Quite simply, do you like them?
3. Realistically, how available will they be to you?
Investors tend to be busy people! It’s up to you whether you want someone who is a chequebook and not much else, or whether you want someone you can speak to as and when for advice, or even someone who is there every day helping you grow.
The important thing here is to make sure you know in advance what the investor will do for you and decide whether it’s the right level of access for you. They might sit on lots of company boards which could be a sign that they have many other commitments and might not be readily available when you need them.
Confirm whether it will be you who determines how much advice you need from them, rather than the investor demanding weekly meetings and giving you advice when you don’t feel you need it. The onus should be on you to ask for help, advice or a listening ear whenever you need it, and to be left to get on with it when you don’t.
4. Do your due diligence, and then some.
Speak to as many people as you can who have worked with the investor. You can ask the investor for some names, but realistically they’re only going to give you details of contacts who will say good things. Do your own research on who they’ve worked with and find out if there are any red flags.
Obviously, you’ll want to know about any deals that went sideways, agreements that didn’t turn out as expected and any other ‘traditional’ issues. But red flags don’t have to be ‘bad’ thing about the investor, they could just be things that don’t marry up with what they say.
For example, past levels of involvement in the business. An investor might say that they don’t want to be hands on and that they will let the entrepreneur get on with it, but in reality they may have found it hard to stay away and ended up being far more involved than they said. Not necessarily a bad thing, but worth knowing in advance.
5. Think about your future
Particularly if this is your first funding round, think about your future ones. It can be really valuable to find an investor now that has a history of participating in future funding rounds for businesses that they invest in. Then, rather than sharing ownership out with lots of investors you can keep it simple, and save time and money finding new investors each time. This is not only easier but can also make your company more attractive for investors/buyers in the future.
Of course, if you are hoping to find any other investors in the future, you’ll need to consider the impact your current choice of investor will have. Will having this investor on board now make your company more attractive to your ideal investors in the future? Often, having a proven, recognised person as an investor in the early stages signals that you’re a good investment and will make your business more appealing to others.
There’s a lot to think about when choosing an investor, but it’s worth taking time to make sure you’re making the right decision. For even more advice on the types of funding available and how to get them, come along for free to the Northern Business Expo at Manchester Central on 17th & 18th March.
You’ll also be able to meet funding companies and make valuable connections in the networking areas. There’s even a chance to try out your pitch and enter to win £5000 cash for your business! All you need to do is get your free ticket online now, then come along for free!