Choosing the right investment partner, you need to make sure that you go through all of the most critical decision-making steps that you can. Selecting investors can make a big difference in the success or the failure of your business.
You want to partner with investors that already have some experience in your industry.
We must remember that when you choose an investor, you will be tied into that agreement for the foreseeable future.
Even if you come to regret your decision later, the contract will keep everything in place.
Partner, not money
You should be conscious that you aren’t just going after the cash; you are looking for a business partner. Look for an investor that brings something to your business.
It could be that they have experience within the industry that you work in, or they have a plethora of other business acumens that will benefit you.
When you have the initial discussions, it is essential that you feel some sort of mutual connection or that you have unspoken respect.
When you are in the conversation, consider if this is a person you would go to when you’re in need of help, and if the answer is no, then they are not the investors for you.
Remember that while you are the business that needs money, you are under no obligation to go with investors you do not feel comfortable with.
Value
You already know the value of your business and what your business will bring to and investors portfolio.
But you don’t know until you ask questions and go through all of the paperwork provided is the value they bring to you. You also need to assess your value gaps; what are you missing? And what can they fill in for you?
If you have a unique or unusual business model, does the investor understand how that model works and how it fits within your industry?
Usually, if you’re having these kinds of conversations, you know already that they do understand your industry. But for some specialized markets, you will need specialized investors, halo collective stock, for example, is specialists in their industry.
You need to know how connected the investors are to other businesses within the industry and what the portfolio says. For example, if they have a portfolio filled with many different companies, how could you be sure that they can dedicate the time to you?
Furthermore, if they have a lot of business investments that are the same as yours, would it be a conflict of interest later down the line?
These are questions that you must ask yourself before you decide to go any further.
Time commitment
We briefly touched on time commitment, but it’s something you need to give a lot of consideration to.
If your investor is on many boards, has multiple other investments, and runs their businesses, how much time can they honestly give you?
And if you only meet with the head of investments, are you sure that they will be the person handling your business later on? Or will you be working as part of the team?
You should be sure to ask how often you will interact with them in person and how accessible their network will be to you.
For example, if something should happen, will they be immediately available for you to ask questions to help put out any fires.
Long or short?
Your business is a long-term investment to you, but maybe a short-term investment for an investment firm or a private investor.
It is always important to ask if they have the same term focus as you. It is often the case that private equity firms and VCs will have a limited life on their funds, and once they believe the obligation is over, they can pull out their funds and ask for payment of anything. Read terms and conditions for a full understanding of what is in there.
Before you sign anything, you should be sure that you understand how long the investor or equity firm is expected to be involved with your business.
Deliverables
Investors are looking to make a return on the money that they put into your business. You need to be aware of what the deliverables are on your end.
Of course, this will be in early discussions, but you should make sure that you have a solicitor to read over all of the paperwork to make sure that you fully understand what you need to provide.
It might be that you need to have a certain amount of sales or that they expect a certain amount of equity or other financial costs.
Red flags
Of course, you have plenty of paperwork, references, and their CV. You’ll also find their website, and there is a lot of information there too.
However, it is your job to dig a little bit deeper and do your due diligence. If there have been previous investments that have not worked out, find out why this happened. It could be that the investor isn’t as willing to put the time, effort, or cash into the business as they first appeared.
Most often, investors and equity firms will only share the situations that went well and will not discuss things that did not turn out as everybody had hoped.
During the early questions, you can ask if you like and share the names of the founders and CEOs that they have worked with previously, including those listed in their success stories.
But don’t be surprised if they aren’t willing to give you this information, which is why you need to do your research.
Thanks to the Internet, it’s not too difficult to find any investments that have not gone well, businesses that have folded, and previous employment records of private investors.
When you’re choosing the right investment partner, you need to make sure that it is the right decision for your business. You have a solid idea of how you want your business to look in the future, and it needs to align with your investors.
It is not worth accepting an investor’s proposition simply for the cash to keep your business running.
Instead, you should be looking for a long-term partner, who believes in your business, can support your business calls, and has a network that can work for you.