Finding the right investor
There is a well-known investment analogy that perfectly describes the relationship between entrepreneur and investor: ”Selecting an investor is much like getting married. Except that you can't easily get divorced.”*
It goes without saying, that selecting the right investor is one of the most important professional decisions you will make – a long term commitment that will make or break your company.
This article is written from the entrepreneur's perspective with advice for owners on what to consider when choosing to partner with an investor.
The skills that have enabled you to build a company; trusting your instinct, having an eye for the detail, being able to spot and a capitalise on an opportunity, will stand you in good stead when ‘scoring’ investors but there are other useful factors and softer issues to consider.
What value do they bring?
This sounds obvious but it’s important to understand the value one investor brings over another. Beyond financial support, what are the gaps in your organisation’s capability an investor could close for you? Technical expertise, access to markets (international?) and talent are just some of the benefits an investor can bring to the business.
Connections and influence
Investors are typically well connected with a black book of useful contacts and influence in the markets in which they operate. The investor’s network should come to the fore during strategy discussions in the early phase of the engagement.
Access
Access to businesses in their portfolio with complementary services or client bases can be a quick way to accelerate your service proposition and customer acquisition. Meet with other businesses in the portfolio and seek to understand mutually beneficial partner opportunities.
Scale versus growth
Helping the business scale through better operational efficiency is a key area for the investor to add value. Doing more with the same is going to reduce expenditure and assist customer acquisition so ask yourself; where can the investor use their experience to help standardise and automate processes to be more efficient? Do they have experience in outsourcing administrative or key functions that you lack expertise in?
Growth strategies
During the funding process there is likely to be much emphasis on growth strategies. You will have your own view on the opportunities for the business and market in the next 3-5 years and so assessing the investors preference and experience in diversification, M&A activity, selling internationally, and moving upstream to higher value clients, will help you determine the ‘fit’ with your business and executive team.
In good company
Do they invest in similar companies or have a diverse portfolio? There’s no right or wrong answer however a track record in your sector is likely to mean stronger advice, connections, and strategic input as the investor brings their experience to bear in the market.
Experience of investing at your stage of growth is beneficial too as the investor will know what resources; financial and manpower to deploy at your disposal, and will be able to advice on the softer issues when scaling an established business.
Top tip! – Learn how other businesses in the portfolio are performing? You don’t want pressure on your company to make up for losses elsewhere in the portfolio!
First dates
The hard factors are important but consider the softer issues too. Reflect on what the early stage discussions are like. If the funding process is organised, structured and fair, then it’s a good indication of how the future relationship will pan out.
The tough get going
It’s easy when times are good but consider how will the investor respond when the going gets tough? Seek examples of previous investments that went through tough periods or even failed and speak with the business owners to get a 360 view of the likely partnership dynamics.
Direct access
You will be spending significant time with the investor but what level of input and decision making do they expect day to day? Good investors know when to step in and when to let the management team get on with running the company. Equally, what access will you have to key individuals or board members that join the company and who dictates the terms? If you need a sounding board for key decisions, do you have access when you need it?
Culture is key
Access the cultural fit; most business owners in our experience want someone they trust and can be honest with, that share similar values when it comes to growing a company, people and customers.
Ask yourself; if these people are going to be part of the team, do they fit with our culture and values? Are they decent people, good to work with?
After the first meetings consider...“if my onward journey was cancelled and I’m stuck with this person for the next how many hours, would I want to run for the hills or am I grateful of the time spent together?
Mentoring
A final but hugely important point – can your investor perform this vital role? Your investor should act as a mentor and sounding board for ideas and key decisions.
These are the things that are discussed across the table when we meet with business owners that help set the foundations for a successful partnership.