Choosing an investor for your business is like choosing a business partner: Their resources and input are going to have a major impact on the way your business functions and the potential it has for success. Determining the right investor for you, then, is not an endeavor to take lightly.
As business leaders, the members of Young Entrepreneur Council have experience seeking investors and weeding out the bad from the good. Below, they provide a list of nine questions you can ask yourself to gain insight into your needs and wants, and help you determine your ideal business investor.
1. What portfolios are my current investors managing?
Entrepreneurs should run an analysis of the companies their existing investors are invested in in terms of size, industry and type of investment. Then, entrepreneurs can start targeting investors with different portfolios than their existing investors. Building a diverse investor network helps create a long-term safety net for the business. – Dave Hengartner, rready
2. Does the investor have interest and expertise in this domain?
We built a SaaS product in the HR domain, and we have been looking for investors who have previously funded HR SaaS companies so that they can bring some synergy. Having a strategic investor can help grow the product and customer base as well. – Piyush Jain, Simpalm
3. What is their risk tolerance?
Some factors to consider when determining what kind of investor is right for a brand are their investment horizon and their overall financial situation. Those with a high risk tolerance may be more comfortable investing in startups or small businesses, while those with a lower risk tolerance may prefer more established brands or blue chip stocks. – Candice Georgiadis, Digital Day
4. What do I need?
An honest and diligent answer to this question will inform the type of investor you need going into your venture. Are you lacking industry experience and the network necessary to expand the reach and abilities of your firm? Then just being given money isn’t enough; you need an investor who can bring the qualities mentioned above to your business. Maybe you’re just starting with an idea and not running a business yet. Then savings, family and friends would be a better source of capital to fund your business. If you’re further down the line and working on a product, then an angel investor would be the right choice for you as you work toward product-market fit. It’s about what you need. – Samuel Thimothy, OneIMS
5. Can I see myself working with them long term?
“Do I see myself working with this investor next year?” is a question I often ask myself before deciding if an investor is a good fit for our company. If a potential partner is demanding too much or not being clear about essential parts of their role, I usually pass on the opportunity to work with them. These habits typically mean they are going to be a pain to work for in the months and years ahead. It’s always better to find investors who mesh naturally with your business and don’t create unnecessary friction. – John Brackett, Smash Balloon LLC
6. Do we think alike?
The right kind of investor for your company would be the one who shares your passion and drive. It’s extremely important that you and your investor think alike when it comes to setting and achieving goals or targets. Be it success or failure, both of you should be seeing things from a single lens. This not only helps you grow together, but it also minimizes conflict if things go south. – Stephanie Wells, Formidable Forms
7. What kind of support am I looking for?
One question to ask yourself is what kind of support you’re looking for from an investor. Do you want someone who is hands-on and will offer advice or someone who is more hands-off? This will help you determine the level of involvement you’re looking for from an investor. When you talk to your investor, you’ll be able to gauge their level of interest and commitment to your company. This will give you an idea of whether or not they’re the right fit for you. – Syed Balkhi, WPBeginner
8. What kind of control are they asking for?
It’s important to understand what level of control the investor will exert. Will they require a board seat? What information rights are they asking for? How often will you need to update them? In the long run, will this control add value or create friction? – Jack Perkins, CFO Hub
9. Do they have a credible track record?
An investor with strong cash reserves might be a good bet, but if they lack experience with startups, it might prove a difficult road to long-term success. Take time to research the investing track record of your investors. Look for investors with a clear track record of successful investments and do your own due diligence. Have they worked with companies similar to yours? What are some of the most difficult challenges they helped other companies solve? Connect with companies they have invested in in the past and understand their investment structure to see if that complements your startup’s needs and vision. Look for investors with diverse, but relevant portfolios since they can provide access to different networks and outreach. – Brian David Crane, Spread Great Ideas