Not Every Investor is Good for your Startup: A Guide to Choosing the Right Investor
Last month, as part of Clean Technology Hub’s Startup Webinar Series, we talked about “What Investors want.” Something one of the speakers said struck me and I’m sure it was the same for most of the startups there too. Ms Etemore Maria Glover stated, “Not all investors are good for your business.” The majority of the time, startups end up with the wrong investor or funds because they are either too eager to get the money or too hesitant to let go of equity in their business. It is common knowledge that investors conduct extensive due diligence to make sure they are investing in the best possible companies. Startup founders should also be conducting their own due diligence, but they frequently aren’t aware of this. If you want to position yourself for the best growth possible, it is critical that you pick the proper investors.
You need investors to finance product development, early marketing initiatives, and your expanding crew. As a result, it can be tempting to take the first or largest venture capital transaction you come across; but, despite what it may seem like, it pays to be selective when choosing investors for your firm. Although there are various ways to finance startups, investors generally fall into one of three groups: angel investors, venture capitalists, or private equity. The offerings of each of these categories are important factors to consider when choosing an investor for your firm.
This brings me to the first thing to consider when choosing an investor; your needs. You must be clear about what you want from the relationship if you don’t want to end up in an unpleasant power struggle or have a fight about something that seems insignificant. For instance, if you need assistance navigating the business world, you may prefer a more hands-on investor who can give you advice, steer you in the right direction, and show you the ropes. Your needs should indicate if you require guidance, a modest boost, or a sizable sum of money to move a profitable idea further.
The next step is to research your possibilities. After determining your company’s needs, you should research the numerous funding choices and choose the one that best meets them.
- Venture capitalists: Typically, venture capitalists focus on sectors with high growth projections. They may offer advice and knowledge because they are business-savvy. The drawback is that they prefer to hold a much larger portion of your company and will take more of your profits.
- Angel Investors: Angel investors are people who have a keen interest in your startup and may want to become more involved in its management. They can provide aid and business knowledge, much like venture capitalists, but on a much smaller scale.
- Private equity investments: The most basic type of investment financing is a private equity, which is frequently provided by private persons. They’ll fund your idea in exchange for a cut of the profits or a stake in the business if you can persuade them that you can turn a profit.
Plan a strategy for attracting that investor type after deciding what kind of funding you require. Make sure your pitch explains how you’re going to accomplish their investment objectives.
The investor’s industry and functional competence are crucial additional considerations. Looking for investment partners with some experience in your sector is often a good idea. These investors ought to be knowledgeable about the background of the market, the dynamics at play today, and the sector’s potential in the future. A functional expert is an investor who has mastered some or all of the essential abilities of entrepreneurship and fundraising. If investors want to aid in the expansion of your business, they must be knowledgeable in their field.
In addition to the investor’s expertise, you might wish to take into account an investor’s network. When assessing possible investors, it might be good to look through their portfolios to see which other businesses you might be able to network with to discover collaborators, employees, advisers, and perhaps other investors. A strong network may help you strengthen your business plan, operations, and other possible areas for improvement while also connecting you with personal mentors.
You should also take the prospective investor’s track record into account. Finding a successful investor is important because success breeds success. You will be surrounded by other successful leaders if your investor has a network of successful business people. As your investor gains knowledge, they might impart it to you. Many of the most successful angel investors were once successful business owners who founded their own successful enterprises. You can also seek out references from people who’ve previously worked with a particular investor or firm to learn more about how a certain company or investor reacts when an investment starts to perform poorly.
Finally, whether or not the investor fits with your brand and corporate culture is a crucial consideration. They’ll most probably sit on your board and participate in many decisions regarding your brand and workplace. Make sure your company’s strategy, goals, and overarching vision are in line with those of investors. Never be reluctant to seek clarification, it’s critical to comprehend their objectives clearly.
In conclusion, finding the appropriate investors for your firm is almost as crucial as actually receiving funds. Make sure to look for partners who have a solid track record, share your vision, and will aid in expanding your network.
At Clean Technology Hub, we provide startups in the clean energy space with support in fundraising, building their winning team, scaling their product or service and other business and technical support a startup will need. Talk to us to find out how we can help you grow.
Halima Adeola-Bello* is an Enterprise Development Intern at Clean Technology Hub