Choosing an Investor: What to Consider

One of the biggest hurdles business owners face when starting out is finding funding. Most startups seek capital in order to get on their feet to put their business on the map.

As a startup, you will talk to a variety of individuals such as venture capitalists, angel investors, bankers, government investment agencies and even your friends and family to help raise money.

Some will be focused on:

- Specific industry

- Region

- Size of business

- Size of investment

If you manage to garner interest from investors it’s time to start a selection process. Remember, just because someone is offering you money doesn’t mean you should always take it.

Take these three questions into consideration before you make your choice:

1. Whose money am I taking?

Personality and expertise go a long way when considering what kind of person to accept money from. Here are a few things you should look at:

• Industry expertise: Does this investor understand your business? This is extremely important. You want someone that can provide constructive feedback on your plan and can make introductions.
• Character: Go with your gut. If you’re getting a bad vibe from someone that’s probably a sign you shouldn’t work together. Make sure the people you get involved with have good character references, which means they don’t have a reputation for trying to move founders out, instead working to make them better operators.
• Experienced: Look for someone who has done it before, especially in the industry you are trying to succeed in. This doesn’t mean it won’t work out if they haven’t invested in your industry before but this will certainly save time and money if they have.

2. What criteria should you use?

Business partnerships are like marriage. You need to see this person as a long term commitment. There are certain traits you should look for before tying the knot.

• Connection: If you can’t be around someone for long periods at a time you may want to rethink. “I find it really important to have a strong connection with my investor” said entrepreneur Jack Smith. “If you build that relationship there is a much higher chance this person will have your back during rough times, and trust me there will be rough times.” Your investor may not be your friend but you should have established some sort of connection during the selection process.
• Financial depth: There is a good chance your investor will need to make more than one contribution to help get the ball rolling. Make sure you choose someone with the financial backing to do so. New investors always want to know if the existing investors have enough faith that they are willing to put more of their own money to keep the business afloat.
• Logic-driven and calm: Watch out for investors with extreme personalities. Look for calm and logic driven individuals to help set your business on track. Emotionally driven investors are bad for business. While someone may seem super excited in the beginning, this may be a sign that once things go south they will be just as emotional - in a bad way. “I made the mistake of bringing on an investor who seemed just as passionate, if not more, than my team was about our company. I thought to myself wow what a great fit! Unfortunately when our business took a wrong turn he wasn’t there to help. He was an emotional wreck. I quickly learned from fellow entrepreneurs they had similar experiences and have advised to avoid these type of investors” - Silicon Valley serial entrepreneur.
• It’s important to have someone who is excited about your business but look out for extreme emotions. Seek investors who are problem solvers and understand the process of running a startup.

3. Isn’t it better to take anyone’s money than not be able to get the business off the ground?

Desperation is the worst. Don’t settle for the first offer that comes your way. This is not to say this won’t be a match, it very well could be, but you must do your homework first. Bringing on an investor should be similar to hiring someone for a position. Go through an interview process and check their references.

Take a look into their past and talk to those they have previously worked with. You want to know exactly who you are going into business with. Just because the money is there doesn’t mean you should take it.

Remember, if you have a good idea the odds are in your favor. Money will find you.

By: Ariel Kramer