Finding the right investor for your firm is a time-consuming process and, if done wrong, can spell disaster.
There are many institutions and high-net worth individuals out there looking to invest in companies of all sizes, and with tech startups appearing across the city, it can often feel like a race against the clock to secure that much-needed capital injection. Yet, despite the increase in funding sources, choosing an investor is not a decision that should be taken lightly, as picking the right investor is just as important as perfecting your product.
Here is my take on how firms can streamline the vetting process to find their ideal investor.
1) Clarify what role your investor is going to play, before beginning the search
There are various types of investors who can come in and offer support at different stages of a business journey, so you need to ensure that you are looking for someone who can solve your current problem, or add value to your current situation. Make sure your investor is the correct size for you and will be able to relate to you at the position you are in now.
If you get it right, providing capital will be the least valuable input from your investor – providing experience, support and a sounding-board are priceless. If you are a tiny startup with no revenue at this point in time, it doesn’t make sense to approach the biggest institutions as they are unlikely to be able to dedicate the time you need to make your business successful.
Having diversity across your investors will help you achieve this balance, as you want to have a group who have complementary skill sets and can also fill gaps in your current team. If you’re a startup of two graduates, complement your existing assets by finding an investor whose name carries some weight or has decades of experience which will help you to avoid pitfalls and problems.
2) Get your books in order
When you begin the search for an investor, you should be prepared for all types of questions – so make sure you have all your books in order. When presenting to potential funders, don’t try and pretend that you can accurately predict the financials of your business for the next five years. It looks naïve to estimate your stationery costs in five years when you are not yet revenue-generating. Be optimistic but realistic.
An investor is putting their hard-earned money into your company so expect them to be vocal about how well you’re looking after it. If you’re not doing a good job, you’re accountable to them. When pitching to investors, it is equally important to tell them why you want them, instead of just telling them why they should want you. Active investors are being pitched to many times a week, so you need to make sure you do your research to stand out.
3) Ensure they share your passion for the industry
This is a vital stage of the vetting process, and one that should not be overlooked. When looking for an investor, you are looking to enter into a long-term relationship with this individual or fund, so you need to ensure that they are equally passionate about your work. Your investors will be key to providing not just money but access to their own network and contact base.
Building on a funding round with connections to further establish your product in the industry is important for long-term success. Getting the money is just the beginning, but finding a financier that shares your interests and understands you will ensure that they are as committed as you are to making your business a successful and sustainable company.