How to Pick your Perfect-Match Investor?

It might sound straight-up ludicrous that SMEs or startups would even have the luxury of choosing their investor(s) because aren’t they running on a shoestring budget? Wouldn’t money solve all problems that SMEs & startups are encountering? Is it a necessary evil to endure the enviable pain or can it be bypassed using investor’s money & resources?

When an SME meets an investors, their first instinct is simple; close the deal & cash the money as quickly as possible before they change their minds!

After all, startups need money & investors have it, so why do anything other than convincing them that your business has a lot of potential & it’s the best thing since sliced-cheese, but needs a lot of funding for it to grow & prosper…

Finding the right investor is like dating & its’s about more than impressing the person with the deepest pockets & knocking them off their socks with your brilliant business idea. It’s about finding someone who believes in your vision & understands the challenges ahead of you & has the business acumen to help you grow & prosper. Most startups who have achieved initial success fail because they scaled-up prematurely, ran out of money, or chose the wrong partner who couldn’t take them to the next level.

The best investors are the ones who are asking you the tough questions: what’s the potential here, what will it take to nail it, and have you considered this & that? As lucrative as money can be, I’ve come to realize that the ideal investor provides more than just money. As the company that I’ve helped cofound (DarTec Engineering) went through a number of investment rounds that never materialized, I’ve come to learn that when looking for an investor, they need to provide way more than just money! I’ve learned that I need someone experienced & knowledgeable enough in my line of business to help grow the business in ways that DarTec can’t do on it’s own!

Here are 5 tips for finding the investor who’s right for you:

1. Understanding your Options

Do you need larger capacity? Larger network? More expertise? More money? All of the above?

Do you need debt or equity investment? How do you quantify sweat-equity & use it as a bargaining chip with investors? Where can you go to seek financial investment advise that is in your best interest?

Based on my experience of talking to approximately 12 different investors over the course of 4-years, different investors can fulfill different needs & it’s your God given right to walkout on a deal that is not right for you because it’s not always about money! At DarTec Engineering, after deciding to get into a partnership with SABIC-Nusaned (2nd largest company in Saudi Arabia & 2nd only to Saudi Aramco), the process was a grueling 19-months process of financial & legal due diligence! It’s prudent to note that the investment process is time consuming & required the allocation of a couple of our resources to fulfill the investor’s requirements. Let’s just say that they were very thorough 😌

Just like SMEs need things from investors, the inverse also holds water because if SMEs don’t grow; it’s a bad investment for the investor! When you finally take your business from concept to reality and reach the investment stage, your first conversations will likely be with angel investors or Seed funds. Angel investors bring individual expertise but rarely have the breadth of resources Venture Capital (VC) firms can bring to the table. Know whom your partnering with when it comes to investors as if you’re considering a dating partner.

2. Study your Investor

Investors are more than just walking ATMs, they are industry veterans. The right choice can help you manage your capital, your infrastructure, and much more. Investors will have seats on your board, so you want partners who provide guidance without challenging every decision you make & choke the business. Always get into partnership with someone who brings you enough business to cover your running cost as much as possible, so that you could focus on sustainable growth, expansion, and developing the business itself.

Part of the due diligence that DarTec had to undergo before getting into partnership with SABIC-Nusaned was the amount of business that the venture would be able to secure as a result of the partnership. This allowed us to focus on what’s important in the books vs. what we felt was right!

3. Knowing where to look

Finding the best type of investor for your business is as crucial as finding a life partner. Knowing where to look or more importantly, where investors congregate in order for you to put yourself in front of them to get noticed! This strategy will allow you to cherry-pick the investor who’s right for you.

At DarTec, we kept a close eye on the investment community dynamics & observed the changes very closely to capture the opportunity that fits our needs and ambitions.

4. Finding the Right Match

For startups, company culture is king! People could simply join an SME or a startup simply because they have a unique culture that allows them to fit nicely. Unique cultures distinguish startups from one another & from corporate culture in general, which is more structured & hard to change. Once you’ve found a potential investor, you need to ensure that they will blend with your culture.

Find someone who can act as both a willing backer & a wise mentor to help your business thrive. The right investor would have your best interest at heart & needs to act upon it by leveraging their collective experiences in ways that would benefit you.

During the process of SABIC-Nusaned’s due diligence, we’ve uncovered a number of inefficiencies that have hindered our growth in the past! Some inefficiencies were within our control while others weren’t, so we started to change and adjust what was within our control & lobbied for others that were out of our control.

5. Diversify your Portfolio & Level of Influence

One thing few entrepreneurs think about is making sure that they are selecting a diverse range of investors, with diverse portfolios. This has many benefits in terms of reach, influence, and access. On the other hand, how much influence do they have in your industry, with other investors, with distribution & media channels, and with other influencers? This can far outweigh the amount of money being invested because it’s not about who you know, rather, who knows you! Depending on your industry, sometimes your affiliations & how people perceive you plays a major role in how you secure business.

Summary

It goes without saying, who you pick as investors is absolutely critical to your success. It will make or break you! These factors can be part of a strong checklist for vetting-out potential investors in your startup. Keep this in mind when tackling due diligence, engaging in investor meetings, preparing questions, and learn how to read people.

Don’t just settle for money, rather, look at what else an investor can bring to the table. It’s your right!

This doesn’t mean investors are going to come in and take over your business, rather, perhaps they can lend their experience to help you make traction. Sometimes all it takes is a few tweaks you hadn’t thought of to your engine that you’ve created to work & gain much needed traction, so that things would progress and move forward!

The Maverick

www.DarTec.com.sa

hashim@dartec.com.sa

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Dr. Hashim AlZain

Co-Founder & CTO at DarTec Engineering Hands-on design experience of over 20-years in reverse engineering, product development, and prototyping.