How to choose a good investor – The perfect equation
Selecting an investor for your business is one of the most critical decisions an entrepreneur has to make. It’s very important to do your due diligence for any given investor who you intend to partner with.
Most startups are so focused on securing the funding that they end up with a failed partnership with their investors. Choosing an investor is as important as choosing your founding team so as to keep your business growing.
Here are a few pointers that can help you set the equation right:
First and foremost , choose a partner who shares the common vision than the investment itself. smart founders want investors who pitch in, help with strategy and introduce them to relevant people. In order to do that, the investor should be aware of the industry and should be able to share your vision for the company. This not only helps with the growth of the company, but also with avoiding conflicts at major decision points.
Understand the level and nature of involvement of the investor in your business. Will the investor be involved in day to day operations? Will he/she help you expand your network? Or is it simply a monetary investment in the business? Their degree of involvement should be one of the top points in your due diligence process.
Assess if an investor has a proven track record and operates in the area relevant to your business. The investor should be able to understand your business model and the industry you are set up in. This is how you establish the connection between your business and the investor. It is always recommended to have an investor who might have worked in a similar industry. This will simply increase your odds to succeed as it provides a higher degree of validation and enables the investor to add more value to the business.
The next point in your due diligence process should be the time frame of their investment. A long terms focus is better than a quick exit. Most investors are in this business for quick returns. However, the investment timeline does not have to deal with a single date. Instead of deciding that the investment will be pulled out after two years, the timeline could be determined by a goal, such as increasing sales by 200%.
Finally, a good investor should be able to have a great working relationship with you. The most important thing is placing mutual trust in one another. The early stages of starting a business can be quite difficult and you need to have an investor who you can rely on. This also means that you need someone who will tell you the truth, even if you don’t want to hear it.
Finding investment isn’t just about securing capital; it is also about finding the right investor to boost your business’ prospects. Understand that there has to be a perfect equation between you and your investor , its not simply about the investment. Make sure you listen to your gut while choosing your investor- you want an investor who is as passionate about your business as you are.
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