When working to find the right business investor, it helps to know you both believe in the same thing. Prior to bringing in new faces to the top table, there are other aspects to consider in addition to the financial side.
Our article highlights some of the most important factors to consider when looking to find the right business investor.
During the early days of your venture, you may not be too picky about who invests in your company.
However, choosing the right investors can be crucial for long-term success.
Experience and track record
The experience of potential investors in your industry is one of the most important factors to consider when reviewing them.
Apart from potentially having a keen interest in reinvestment, they could also act as an adviser in the future. Conversely, an find the right business investor who’s willing to reach into their pocket seems like a no-brainer – but if they don’t have the experience necessary for your business, you may be better off without them.
You might want to do some research on their investing record before committing. Do they have experience investing in companies like yours? In what shape are those companies at the moment?
What is their financial stability like?
To welcome an investor on board, you need to be confident that their money can be invested without too many caveats.
Here are a few key questions to ask before signing any paperwork:
- A prospective investor, when was the last time they funded something?
- What is the investor’s remaining balance?
- What is the performance of the investor’s other investments?
- Does the investor have enough financial resources?
You and your business will be affected by the stress and issues that your find the right business investor faces if their financial position isn’t good.
No matter what their circumstances are, it’s better for you to have an investor who can provide further rounds of funding on his or her own, without additional baggage – and even better if that investor is connected to others who have capital.
A word from the grapevine
Finding new investors at every round can be expensive, costing you a lot of time and money. The process also dilutes your ownership, which can make your company less attractive to potential investors in the future.
Finding out if you can research the reputation of your find the right business investor, finding out if they are already in the habit of participating in future funding rounds, will save you a lot of time.
You can use references to help you find the right match for your business, along with researching a company’s reputation.
In order to ensure they are working with someone who has investment experience, some start-ups only work with accredited investors.
Regardless of whether you’re looking for an individual or accredited find the right business investor, it’s important to always follow up on previous investments, regardless of whether they’re new.
Various levels of influence
Considering how much influence a successful investor has within your industry can provide some additional food for thought when considering their value to your company.
Depending on their influence with other find the right business investor, with distribution and media channels, or with other influencers, their role in your business could extend beyond the amount of money they invested.
Likewise, the quality of their overall professional network – or the lack thereof – is also relevant.
With a solid network, you can get personal mentoring as well as advice for improving your business plan, operations, and other areas that could be improved. A thorough examination of an investor’s network, including its size, location, and expertise, is worth the time and effort.
Finally, their relationships with other entrepreneurs—or the lack of them—can also be a good indicator of their reputation.
Is this the beginning of something special?
It’s a little optimistic to expect to have a crystal ball to tell you when you’ve found your perfect investor. Nevertheless, it’s often said that divorcing your spouse is easier than divorcing your finding the right business investor.
Investing in your business means you have to determine if the person will be a good match for your brand and company culture.
If they will be sitting on your board, or participating in big decisions, you want them to have values that align with yours. If you don’t, you’ll soon begin clashing over important decisions – and don’t underestimate how quickly things can go sour.
You should consider whether you are selecting a diverse range of investors, with a variety of portfolios once you’ve got the ball rolling and are looking at multiple investment streams.
In addition to reaching, influencing, and gaining access, these advantages are also essential for maintaining a steady ship in the event that something out of your control happens.
You have three find the right business investor, all of whom have an extremely high percentage of their portfolios invested in the same company. In the event that the company undergoes a severe downturn, you are highly unlikely to receive more money from them. You may find that they are all looking to your business to compensate for their losses. It’s a pressure you don’t need, which is why diversification is so important.
It’s a squeaky-clean contract
Knowing what makes an investor great is important, but also knowing what red flags to look out for is equally as crucial. Term sheets that are onerous would be top of most advisers’ watchlists.
Terms sheets are critical to an investment’s nature and value, and they can be hundreds of pages long, causing a disconnect between what you want and what a find the right business investor wants to give you.
A common occurrence among investors is drafting term sheets that benefit themselves. Keeping this in mind, understanding whether you’ve received a ‘clean’ term sheet (one that isn’t filled with investor-friendly terms) is crucial.
First-time business owners are rarely educated on this topic, so mistakes are often made during early rounds of investment – particularly when you’re willing to accept anyone with an open wallet.
The following are three things you should avoid to retain more upside for yourself and your employees:
- Any multiplier over 1x is considered liquidation
- value for participating preferred stock
- subject to price-based antidilution provisions
The key to long-term business growth is getting the right financial advice. Get in touch with your perfect financial adviser now.