The mission to secure investment for your pre-revenue or scale-up business can be a long and challenging one. Rarely do entrepreneurs find investors that want to support their ventures straight off the bat. Instead, you can expect to spend time seeking opportunities and pitching to many individuals before you find one that suits your ambitions.
Due to the pressure to obtain investment, it may be tempting to jump at the first offer you receive. However, it’s vital to ensure anyone you choose to work with is the right fit for your business. By doing so, you can build a long-lasting partnership in which both sides benefit and are satisfied by any agreement made.
Not every investor you meet will be suitable. So, you must understand what you want from the opportunity and use it to refine the type of investor you want to work with. Knowing what you want will also help to streamline how you approach and pitch to the relevant people.
In this guide, we have outlined the six things you should look for when searching for the perfect investor so you can make the best choice for your business.
- They can give you the funding you need
- They have industry experience
- They suit your preferences
- They appeal to other investors
- They’re a reputable person
- They’re interested in your business
They can give you the funding you need
The first criterion you need to fulfil when seeking investment is filling the funding gap in your business. Before you begin the search, you need to calculate how much funding you need to meet your goals based on your predicted expenses and other financial figures.
Once you know how much money you need, you have to identify sources that will give you that amount. Different types of investors might offer you higher amounts of funding. For example, venture capital firms tend to provide more funding than angel investors due to pooling finance from multiple sources. So, be aware of the differences in funding levels and work out what would suit you most.
Remember that an investor’s ability to give you the funding you need is dictated by your ability to meet their criteria, so you need to find a happy medium. You want to maximise the possible finance available to you without having unrealistic expectations. If you can’t find an investor who can meet the financial requirements for your goals, it might be worth considering other lending sources that can be used alongside investment.
They have industry experience
Another thing you might want from an investor is industry experience. With this experience, an investor can become more than a source of funding. Instead, they can provide helpful guidance in the running of your business and act as a mentor. This can help you keep your company on the right path and decide critical decisions.
They may also be able to put you in touch with valuable industry contacts through their connections, which can further help you during your business’s lifespan and help you build your network.
Approaching someone who is in your industry can also help make the pitching process easier. If they are already knowledgeable about the sector, they will likely know the context behind your venture, including market gaps, audience pain points and what it takes to succeed. So, if you have a proposition that offers value to the industry, the investor is more likely to recognise this and engage with your business.
They suit your preferences
When entering an investment partnership, you may have specific preferences about what the relationship will offer. Funding is the primary goal, but some investors may provide advantages beyond this.
Investors may take different approaches to the business they work with, either hands-on or hands-off. You will likely have a preference as to which you want from an investor. Some people like to have someone acting as a mentor and offering a second opinion on the business’s running. Others prefer to make their own choices without the input of shareholders. If you have a strong inclination either way, you will want to find an investor that matches.
Depending on which approach you choose, it’s worth weighing up the time commitments of the investor. If you want a hands-on supporter, you need to determine how much time they have to devote to your business. Similarly, if they’re going to be actively involved, you need to consider how much time you have to hold shareholder meetings and keep them in the loop.
By determining these needs and finding someone who fits them, you can manage expectations and avoid tensions if either party isn’t getting what they want from the deal.
They appeal to other investors
Another consideration to make when selecting an investor is how they fit into your broader financial goals. If you are amassing a great deal of funding, you may have more than one investor in your business. So, you need an investor who appeals to others and can work alongside shareholders to help you attract and retain investment for your venture’s lifespan.
Similarly, if you are using non-equity finance for your operations, you need to ensure any investor you work with is happy for you to pursue such funding. If for any reason they are not, it may mean you have to ask them for increased funding or have to find someone who will enable you to use other external finance to secure the capital you need.
They’re a reputable person
If you’re working closely with someone, you want to get along with them. So, it is natural to want an investor who is a likeable person who can work effectively with your team and anyone else associated with your business to avoid tensions and poor working environments.
You also want to make sure your investor is reputable. If they become embroiled in any kind of scandal or controversy, there is the risk that this can tar the name of your business. This can cause irreversible damage to your reputation and force them to rescind from their shares in your company, leaving you with a gap. To avoid such threats, try to work with credible figures who share the values of your venture and can help to maintain your reputation.
They’re interested in your business
The most fundamental factor to look for in an investor is an interest in your business. If they aren’t interested in your enterprise, it’s doubtful that they will choose to invest their money into it.
By uncovering an investor who is engaged with you, you will increase your chances of substantial funding. Further, if they believe in you and your vision, it can be a confidence boost as you lead your venture towards success.
You will also want an investor who understands your business’s values and vision to keep everything on track. If the investor has drastically different ideas about the future of your business, it can result in disruption and you getting pulled in two directions, especially if they are going to have a say as a shareholder. However, if they are on board with your ambitions, it will make the relationship and running of your company much smoother.
Get advice
If you look at an investor as a business partner rather than just a funder, it becomes increasingly transparent why you need to be selective about who you bring into your business.
By finding someone who suits all your needs, including funding requirements, and is aligned with your business goals and values, you can create the foundations for an excellent working relationship that offers mutual benefits to both parties.
If you need support in identifying the best form of equity for your venture, we are here to help. Our advisors can discuss your needs and determine appropriate funding solutions, and put you in touch with worthy contacts for your financial journey.
We can also help you to get investment-ready to increase your chances of securing the perfect opportunity for your business.