How to Find the Correct Investor for your Startups
Getting your startup funded is a dream of every startup founder from seed funding to later stages; funding plays a vital role in the success of every startup. But have you ever realized that more than money the source of money can be vital in your startup’s success of failure?
Yes ! the choice of source of money (Investors) can be a stepping stone or roadblock for your startup.
Securing capital for your startups can come from several resources (e.g., personal savings, credit cards, traditional bank loans, crowdfunding, your parents, etc.) but finding an investor is much more important who believes in you and your vision. Entrepreneurs must ensure that they are choosing the right investors for their startups, your selection of investors’ can either destroy your dream or can be the foundation of your startup’s success.
When you’re on board with an investor, that alliances or individuals become part of your cap table for a long period. It will not be an exaggeration to say that choosing the right investor is like choosing your life partner, one can make or break your life the other can make or break your startup.
At the initial stage, the smallest amount of initial seed funding can have a huge impact on who you can attract in the future for further investment rounds. So, even your initial small amount of investment in your startup should be chosen carefully.
Deciding the quality which needs to have in investor at the dawn helps entrepreneurs streamline the filtering and screening process while empowering them to make better decisions.
Following are some important pointers to help you choose the right investors for your startup
The Right Investor for your Stage- Selecting the correct level of investor based on your stage or round is the most foundational step. Everyone wants that VC (Venture Capital) Money. Yet before going into it, you probably need to be holding angel investor and family and friends funding rounds.
Investor’s financial health — Ok so you got one investor who is/are ready to invest in your startup and they are also ready to invest the amount that you need. In this situation instead of directly saying yes to this fund; check your investor’s financial health. If the investor isn’t doing well financially, that person going to be under a lot of stress, and that pressure will slowly flow down to the entrepreneur. Even though it is not critical, it is clearly more profitable and efficient to have an investor who financially sound for foreseeable future, can make further rounds of funding and is not in need of instant returns.
Diversity- One of the important things which only a few entrepreneurs think that always select a diverse range of investors, with diverse portfolios. Diversification is the benchmark of any solid investment portfolio and it has several benefits in terms of influence, reach and access.
For instance- Suppose you only have three investors in your social networking startup, each of whom has 35% of the portfolio on Facebook and Facebook suddenly goes down hard. It is highly dubious you’ll get more money from them. In fact, they’ll probably be surrounded by an enormous amount of stress on you to make up for it.
Ability to fund repeatedly- For the reputation of the company, it is very important to stick with your investor for a long period of time because finding a new investor for each round could be costly and time-consuming. It also diminishes your company repo and can make your company less attractive to others in the future. So ideally you should choose an investor who can invest in your startup repeatedly.
Influence — Keep an eye, how much influence your investors have in your field, with distribution, with other investors, and with other influencers? This can far prevail the amount of capital being invested.
For example — Top tier early stage VC investor like First Round or Andreessen Horowitz are specialized in investing in seed. If they support you in investing, they’re not only financially supporting you but become a useful resource for organizing, marketing and realizing ideas. That type of value is something to take care of when making your attempts to raise capital.
The lead should lead the way– Lead investor plays a vital role than that of other investors, a lead investor tends to be much more involved in the business. Since the lead investor has the highest investment amount in your startup thus the lead investor also has the loudest say in your business that can lead your startup towards or away from the goals you have from your startup.
Also, make sure that your chosen investor makes it more attractive for your ideal investors in this or future rounds. There are many examples, having prominent individuals or alliances on your board can attract others to join the board with fruitful investments.
In addition, great investment giants on your board will strengthen the credibility of your venture. Remember always that initial stage of investing is all about trust that you’ve developed with your investor.
Synchronization of thoughts and personality- Your brand is your company’s most precious assets, ensure the investor fits into your brand and company culture. A good investor will mix up with your company culture and make many brand and office related decisions in the desired prospect.
Also, your investors must have the same expectations from your business as you have. For example- An entrepreneur may want his app to be ad-free but he may be forced by the investor to run ads to secure early RoI.
Congenial- Your investor must be congenial for you and your funding team, key talents, other investors and vendors. If you lose any one of them from your ecosystem, the money you’ve got probably won’t be able to stay you in the business.
In many cases, founders end up dealing with the unpleasant investors who make them weep at each board meeting. In these instances, the investors are mostly top-tier VC investors. Make sure you’ve chosen folks for investing must be a positive thinker and good people.
Closure- Entrepreneurs need to choose humble investors who are familiar with your venture industry. Investors are the most critical part of your success, either they destroy you or made you. These key factors are helpful in selecting potential investors. Keep this factor in mind while engaging in preparing questions, investors meetings and learn how to read people. It’s not just about capital, they might be able to share their experiences to assist you to succeed and bring your company to the next level.
Originally posted at — How to Find the Correct Investor for your Startups
