You built your company. You made a pitch deck. And hey, that pitch deck was successful at getting you an investor — maybe even a number of investors. But now you have to decide whose money to take. While it’s tempting to take the highest valuation or the most money, this isn’t the only thing to consider. In fact, a large valuation can often set too high of an expectation.
Any investor can offer money in exchange for equity. But money is only a small part of what makes an investor valuable. He or she may work closely with you from this point forward, take a seat on your company’s board, and be a part of the decision-making process. This article sets out some of the qualities to look for in an investor. These qualities can affirm whether the investor you’re partnering with is right for you.
A different investor at each stage of life
Money is money. At the same time, you need to understand that different types of investors come in at different phases of your company. You likely won’t have a venture capital fund putting money in when your startup is a little less than an idea. At this stage, you’re better off asking friends and family members, or look to angel investors. But once things start to get going, it might not make sense to take an immaterial amount of money from a friend or family member when a seasoned investor can offer a lot more.
The right industry, the right network, and the right influence
When looking for an investor, you want to see what their niche is and what they can bring. If they’ve spent the past 20 years solely in the mining industry, it might not make sense to bring them on board when your startup works exclusively with food products. Take a look at their portfolio and see if they’ve invested in businesses similar to yours.
By bringing on someone who’s already an expert at what you’re doing, you can avoid mistakes that they’ve made or seen in the past. This investor can introduce you to the right people and figure out how to make the business more efficient and competitive. They might also be able to introduce you to key people in other organizations to arrange mutually beneficial partnerships.
Additionally, if they have influence in a particular industry, this could lend credibility to your company, whether it’s having them on the board or having others simply know that they’ve invested in your business and believe in you. It can thus be a lot easier to land clients, partnerships, or even other investors.
Could you grab a drink or go on a date with this person?
Finding an investor is like getting married. That’s why you have to make sure you like them. Is this a person you want to grab drinks with after work? Would you survive if the two of you were stuck at an airport? These are all important questions to ask about someone you’re going to work closely with.
If you don’t like a person, there will ultimately be other issues in the relationship. You need to find someone you can trust (because you’re trusting them with your business and they’re trusting you with their money) and someone you can communicate with. Trust plays a big part in this relationship because the investor wants to know that you’re running the company properly. You also need to trust that your investor is helping to source partnerships or clients, if that’s what they promised, and not just thinking of their next investment opportunity. Communication is mandatory for everything from airing out your grievances to explaining strategies, plans, and visions. Investors commonly invest in the entrepreneur as much as they invest in the business. If you can find someone who understands your vision, you’ve already won half the battle.
Choosing an investor or investors is an important part of your business’ life. Make sure you’re choosing the one that is right for your business’ current stage, that they’re someone who’s in the right industry, and that this investor is someone you get along well with. This will ensure a strong partnership and increase the overall success of your business.