When you’re a first-time entrepreneur, you will be tempted to accept checks from just about anybody who’s willing to give you one. However, it can prove to be counter-productive. A wrong investor can bring you a lot of headache and affect how you do business in a negative way. Finding the right investor works both ways – it’s equally important for you to choose them as it is for them to choose you. But before you can actually make up your mind, you need to consider a few things.
1. Do you share views with the investor?
Finding an angel investor who has similar views to yours is one of the keys things. If you have a different idea of the limit of the possibilities, you probably won’t be that excited about working together. It works like marriage – if one person wants children, while the other doesn’t, it will lead to a lot of arguments. Make sure that you get along with your investor personality-wise, because that’s the only way the pair of you will cooperate successfully.
2. To what has the investor given money in the past?
You can tell a lot about the investor based on his previous investments. Ask around, do your research and make sure that you know what kind of a person you are getting involved with. Maybe his success rate isn’t as high as it seems or he invests only in particular areas of business. Having that kind of information will allow you to predict whether he’s the right person for your startup and if he would be willing to participate.
3. Does the investor know the industry?
The best kind of investors are those who have actually been where you are and have the right amount of experience. They know where potential issues may be and how to handle them, because they’ve already done it. If you find a great investor, he can be more than just a person who will write you a check – he’ll be a mentor and provide valuable advice when you need it.
4. How does the investor handle his investments?
Before you agree to anything, know how your investor operates. Is he likely to take over control? Will he sit in the background and let you do your thing? How many companies he’s involved with? If you’re the type of person who just needs funding but doesn’t want to have anyone dictate how to do business, it’s crucial to know this beforehand. Just be sure to ask about their involvement, because it will save you plenty of time.
5. How much equity will you share with investors?
Ideally, all of your investors combined will take 5%-20% of total shareholding. Giving up too much equity reduces your overall control of decision-making, but sometimes, startups feel like they don’t have the luxury to be picky. That is not true. Starting a company is a big deal itself, so including the wrong people can be hazardous. If someone wants 50% of equity, think hard whether that’s a risk you’re willing to take.
6.Is the financier willing to re-invest?
If you think you know how much money you will need for, let’s say, the next year of two, chances are, you are wrong. Business is very uncertain and, no matter how much planning you do, unexpected expenses are bound to come up. What you need to do is find out whether your investor is willing to lend you additional capital in case you need it. It will create a certain sense of security, because you won’t have to operate on necessity, but on opportunity, which allows you to make smarter business moves.
7. Do you have a good pitch?
As I said before, you choosing them is as important as them choosing you. With that in mind, work hard on your pitch. You could be the most responsible person in the world with the greatest idea, but if you can’t communicate it to investors, you have nothing. A good pitch is clear, easy to understand and has a vision behind it. So, assemble the right team, gather all the supporting data and make your presentation interesting.
Finding the right investor is time-consuming and there will be times you’ll feel exasperated. Just don’t lose focus of what’s important, which is your life, career and future, and choose accordingly.