It is important for all business, especially startups, to garner support from the right type of investor.
When it comes to investors, one size does not fit all, and it’s not always those who “show you the money” that will be the right fit for your business. The process can seem daunting — particularly for a startup.
Having started and sold three companies, while currently building my fourth, I have identified some of the necessary factors when it comes to selecting the right investor partners (and it’s not always who you think it will be).
Build the right team to attract the right investors
Always have your eyes open when it comes to expanding your team and your network — because every partnership matters. For example, when hiring service providers like an attorney or CPA, tap experts with fundraising experience who will know about the journey you’re embarking on. Therefore, they can help guide you at the various stages of company growth. Oftentimes, it is your closest pool of business allies who will help foster introductions, provide feedback and insight, and help vet potential partners and key executives.
The seed round helps it grow
Early investors are arguably the most important part of the fundraising lifecycle — it helps setup your company from the beginning and will dovetail to follow-up rounds. For that reason, your initial investors need to be champions for you and your vision as they are the key players that help build the foundation for your company through their business acumen and passion. The people you bring on at the onset can help evolve the strategy and vision for the company.
Search for hidden truths
The best investors invest more than money — they devote their time, energy and unique skill set to your company. Sharing an entrepreneur’s passion for their business must be inherent in their investment. To ensure this synergy, entrepreneurs need to do their research with trusted business associates and public records to answer important questions:
- Does the investor have complimentary investments in other products?
- Does an investor have financial connections to companies that would benefit from your product?
- If it is a venture capital fund, who are the investors in the fund?
- Are their potential conflicts with other board members or other investments?
- Are there any possible hidden agendas?
These answers can help you to identify if the investor will be a strong partner for the long-haul.
Seek out those who enhance your skill set
Beyond an influx of cash, investors offer different expertise that can help you think about your business from different perspectives. As an example, I focus on innovating and building new feature sets — while my investors bring financial acumen that can help me see a different side to my business and think about growing it in different ways. The right investors help you anticipate tough questions for future financing rounds and help set you on the path for a smooth process. Because industry expertise matters, I seek out partners who know the nuances of my space — and that matters. While selling one of my companies, one investor gave me the confidence to turn down a flashy offer and hold out for a bigger price that more successfully set things up for me and the business. The right investors provide big picture advice and can help you see the forest from the trees to make decisions that will benefit you most.
Pursue relationships that will stand the test of time
I’ve always believed that in business, it’s about playing the long game. Cultivating relationships and strengthening them over time will pay off in many ways. Most entrepreneurs are focused on the business in front of them, and they aren’t always thinking of what’s next for that company or even what’s to come with future endeavors. Some of my most valued associates have been with me since I started my first business. I have formed strong bonds with people who I have partnered with for decades, and as a result, they are trustworthy and reliable investment partners who also believe in me.
Investor relationships can often make or break the long-term success of a business, so these partnerships should be evaluated closely to ensure you’re asking the right questions, scaling the right way and ultimately choosing the right investors.