Securing funding for your startup or new business is an exciting yet challenging task. It can be tempting to accept money from anyone willing to invest. However, an investor does more than provide funds. Their role in your company can change the dynamics, and selecting an investor that shares your vision and values is crucial.
Do
your due diligence before choosing an investor. Research the firm and
individuals involved, verify references, and develop a list of
questions to ask during your next meeting. Use the following
suggestions to pick an investor that brings strategic value to the
table.
Think
about an investor's industry and functional experience
Venture
capitalists and angel investors
bring
knowledge (in
addition to cash) to
your business. Investors rely on industry experience when providing
targeted advice, and their backgrounds
may influence their decision making. Their knowledge should be
relevant to your industry and stage of development. For companies
with a physical location, your investor should be familiar with the
local market and customer base.
Also,
consider an investor with functional experience. This could be
someone who has founded a startup or had a significant role in
running a business. An investor with a business background may
appreciate the finer points of entrepreneurship or feel emotionally
invested in seeing your small business succeed.
Don't
forget to look for an investor with a solid track record of
successful business-building and exits. Look at their current and
previous investments, and if possible, speak with people who have
collaborated with the investor previously.
[Read
more: Business Investors: A Guide to Knowing When and How to Find One]
Consider
an investor's vision, values, and mindset
Your image and reputation hinge on how well you convey your brand across multiple platforms and mediums. Each aspect factors into your trustworthiness and ability to generate customer loyalty. Regardless of your investor's participation level, accepting an investment ties your entities together in the eyes of the public and customers. A venture capitalist with a poor reputation can come back to haunt you, as brand-damaging moments exist on the internet forever.
Think about how your investor would react in various scenarios, such as a setback delaying growth or an edgy take on a new product line.
In
addition, differences in values or mindset can affect your company's culture
and
operations. If you promise employees that you'll support their
work-life balance but choose an investor expecting staff to work
weekends and holidays, problems could arise. Likewise, 69% of
investors told NerdWallet
that
"it's important to them to invest in a socially responsible
way." Yet fewer
than one in four of
investors surveyed
place most or all of their money into investments that align with
their values.
Go
through the finer points of your brand's mission and values. Look for
investors that not only share these ideals but are willing to stand
behind them.
Decide
if your tolerance for risk aligns with an investor's
Investors
like new and innovative ideas, but
risk tolerance
differs
among individuals. Some investors
are willing to back your unique product or marketing concept because
they know it has the potential to be wildly successful. Others prefer
that companies take a more conservative approach. The return on
investment (ROI) may be lower, but there are fewer risks.
Think
about how your investor would react in various scenarios, such as a
setback delaying growth or an edgy take on a new product line. Will
they push your company to take riskier moves than you're comfortable
with? Or refuse to back ideas because they want a safe bet?
[Read
more: 6 Financial Terms to Know Before Pitching Investors]
Gauge
an investor's strategic value
Investors should bring value to your business. They may be well-connected in your community and be able to open doors to new opportunities. Or your angel or private equity investor could take more of an advisory role, bringing their deep understanding of finances, analytics, or marketing to the table. Consider investors with skill sets that fill knowledge gaps in your organization and who want to invest skills and time.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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