How do you find the ideal investor for your startup?
When looking for investors, you need to look beyond the capacity to inject capital into your business and need to make sure that a partner is going to be long-term and will help grow the business and complement its culture.
Seeking investment typically means trading something for access to funding. With VCs and certain angel investors, that can mean equity in your company, which could mean that they have decision-making power on major company issues. With banks, you’re borrowing money, so you’re paying a premium, or interest rate, on the amount of money the bank lends you. This also has strings attached, as many banks want to know how you plan to use your loan before they issue it.
Working with investors is a great way to take your business to the next level, but it’s a trade-off nevertheless. When seeking funding, you need to weigh your options and consider what you have to give up to get the funding you need and if you’re getting anything more than the capital itself.
We suggest asking these 4 questions to understand what kind of investor would be the best fit for your company’s future.
- Financial structure
What kind of investment are you looking for? At the early stages friends and family could be great investors as they support you and your ideas. As you go along it is important to consider the various types of investors out there- equity-led, revenue-based, grants and more. All these factors impact the flow of capital as well the role the investors play in your company’s growth.
- Role and involvement
How would they fit into your company, and what would be their role? Would they be more supportive, collaborative, hands-on, and involved with day-to-day tasks?
Think about the kind of network they have and what would positively impact your business.
Could the investors’ network open doors for you to expand your business, or would they be willing to invest in your startup for future funding rounds? Thinking long-term would be helpful as you onboard a business partner. Also, understanding the diversity of their investments will help you get an idea of how they operate and their investing style. Have they invested in similar companies before? Having a precedent helps to access the capital faster and also get access to the right kind of network.
- Compatibility with the team
Try to gauge the culture the investor thrives in – would they be a good fit for your management team? The values that drive your startup need to be in sync with your investors to expand the business exponentially.
Whatever you do, it is essential to take your time and do the research to know who can be the right fit for your company.
To empower founders with this decision, Next Chapter Raise has developed a course that deep dives into the psyche of investors and how you can get the best-suited ones interested in your business.