Funding is one of the many challenges businesses face in their quest for success. More often than not, you’ll need to look outwards in order to get that much-needed fund.
That is, you’ll need to find an investor.
When it comes to finding the right investor for your startup, you might think that money is the most important factor to consider. But that’s not always the case.
That’s not to say that money isn’t important. In fact, running out of cash is the second most common reason why startups fail. However, choosing your investor based on how deep his pocket is alone will not guarantee the success of your startup.
So how do you choose the right investor for your company?
Well, that’s what we’ll be dealing with in this post.
Tips On Choosing The Right Investor For Your Startup
Here are four tips that’ll help you when choosing investors to participate in funding your startup.
Know Your Options
What do you need? Is it money? Human connections? Or guidance?
Understanding what you need will help you make an informed decision about which type of investor to look for.
Every founder wants that VC money – and they, the VCs, are looking for someone to give it to – but unless you’re past the idea stage and can promise quick growth that’s backed by hard fact, you’re probably not getting it.
And if you’re looking for an Angel Investor, you have to decide if you’ll search within your circle of family and friends or you’ll take advantage of your network (or someone else’s) and get someone with money and experience in your industry. Which means that you can access invaluable guidance on navigating the startup ecosystem.
All these really depend on what startup stage you’re in. So you have to critically assess your situation and determine what resources you need the most and how to get them.
Understand Your Investor’s Financial situation
Let me tell you one thing that you certainly don’t need when running your company : an investor breathing down your neck because your startup is his only hope.
That is why you have to take time to examine your potential investors financial position. They are going to run background checks on you anyways, so why shouldn’t you do the same?
An investor whose financial situation doesn’t look good will pressure you into making some decisions that might not align with the long-term goals of your company.
So you want to be asking yourself important questions like
- When last did this investor fund a startup?
- How much money does he have left?
- Is he in the habit of funding repeat rounds of investment?
- How are his other investments doing?
You can use a platform like Crunchbase to find answers to those questions.
Confirm How Strong The Investor’s Network Is
Look beyond the money and think of all other things you can get from your potential investor.
Once you pick an investor, he joins your network. And if you play your cards right, his network can become an extension of yours. A reputable investor will most likely be associated with other reputable investors. As they say, birds of a feather flock together. The type of investor you pick now can influence what type of investor you can attract in the future.
They can provide you with marketing and HR assets that can help ease the growing pains of running a startup. You should always keep an eye out for this sort of value.
Find Out What The Investor Wants
Of course he wants money! Investing early in a company is risky business so your investor surely aims to reap a huge return on his investment.
But what else does he want?
You have to know if your potential investor plans on being active in the running of the company or if he prefers a hands-off approach.
You have to know if he believes in your vision for the company with you at the helm or if he plans on forcing you out in the future.
You need to know if he is easy to work with. You don’t want someone that’ll bite your head off anytime you hit a rough patch and force you to make up for it at the expense of your customers.
You should be able to accommodate your investor because you know that he trusts your vision of your company.
Without a doubt, the choice of your investor will play a major role in determining the success or failure of your business. You should keep these tips in mind when making your choice. Remember that while money is important, there are other factors alongside it that dictate the pace of your company’s growth.