How can I judge the role a potential investor will play in my start-up?
I’m in the process of starting up a fast-growth business and have several potential investors showing interest in the company. The finances on offer are fairly similar, so I am trying to judge which one would provide the best guidance to my business. How can I tell if an investor will play a constructive, interested role in my business?
Choosing an investment partner is a bit like deciding whether to marry someone – you can never be entirely sure, but it makes sense to think carefully and do as much research as you can.
You and your investor are heading into a marriage – a long-term partnership that you hope will work well for both of you, but is certain to have some nasty bumps along the way!
It’s tempting to take the best financial deal, but wise to bear in mind that what matters most is the ability to create real value in your company. So I would always choose the investor who you think will most help you do this.
The first thing to be clear on is why they want to invest. Are they looking for a specific return in a specific timeframe? Or are they long-term players?
Are they likely to try to force your hand if things don’t go as hoped, or will they support you? Do they like to be actively involved and take board seats, or are they passive investors who are very tied up elsewhere?
Be clear about the help you need. An investor strong in marketing is great if that’s a capability you lack, but not so great if that’s your strong suit, for example.
Then think about it as you would a new hire. Look at what they’ve done before – this should be easy to find online.
Call the CEO of any companies they have invested in and ask them what their experience has been – and don’t just pick the successful ones. Ask particularly about areas which you know are important for your business.
Get to know them as well as you can. See if there is anything concrete you can work on together before you commit – a piece of strategy work, for example.
As much as possible, don’t feel rushed. This is a marriage and you need to spend time together before you commit. Be open about all of your concerns, and be very clear about what their goals are in investing.
Finally, trust your instincts. Choose the one that ‘feels’ best to you – chances are there’s good reason for your ‘feel’.