When you meet with investors, your first instinct is simple: Close the deal and cash the check as quickly as possible. After all, startups need money and investors have it, so why do anything other than convince them your business has a lot of potential but needs a lot of funding?
Finding the right investor is about more than wooing the person with the deepest pockets. It’s about finding someone who believes in your vision, understands the challenges ahead of you and has the business acumen to help you succeed.
“The best investors are those who are asking you, ‘What’s the potential here, and what will it take to nail it?’ Rather than, ‘How little capital do you need to execute your plan?’” said Donna Harris, co-founder of 1776, a startup assistance company.
As nice as money might be, the ideal investor provides more than that. You also need someone experienced and knowledgeable enough to help your business grow. Here are four tips for finding the right investor:
1. Understand the options.
Do you need a bigger network? More expertise? More money? All three?
Different investors can fulfill different goals. When you finally take your business from concept to reality and reach that co-founder stage, your first conversations will likely be with angel investors. Angel investors bring individual expertise but rarely have the breadth of resources venture capital (VC) firms feature.
While angel investors tend to be more lenient on their initial requirements, VCs usually want hard, empirical data before backing you. If your business plan isn’t ironclad and heavily vetted beforemeeting with a VC, your capital won’t come through. While some entrepreneurs find willing VCs in the early stages, most have more success approaching angel investors at first and saving the VCs for the second round of funding.
2. Educate yourself on the assets and resources different investors can provide.
Investors are more than just walking checkbooks -- they are industry veterans. The right choice can help you manage your capital, your infrastructure and more. Many investors will have seats on your board. You want partners who provide guidance without challenging every decision you make.
For instance, many larger VC firms have marketing departments devoted to handling external messages and portfolios. The strategy can position young startups in front of potential future investors and assist with press releases and other areas a company might not have the bandwidth to properly address.
3. Know where to look.
Finding the best type of investor for your company is a crucial step in realizing its overall vision, but you also need to know how to connect with one. Larger organizations such as Angel Capital Association have chapters all over the U.S., along with an extensive database for entrepreneurs to peruse. Angels Den and AngelList provide other platforms that let new CEOs find and communicate with potential investors.
4. Ensure the investor you choose works well with your company.
For startups, company culture is king. Unique cultures distinguish startups from one another and from corporate America in general.
Once you’ve found a potential investor, you need to ensure he or she will mesh with your culture. Consider a couple of key questions: Does this person want to be involved in day-to-day operations or be more hands-off? And how does this investor’s vision for the company differ from yours?
Startup CEOs and founders tend to be on the receiving end of the questions when meeting with potential investors, but founders should start asking more questions such as “What role do you see yourself having in this company?” Knowing your investor’s level of involvement ahead of time prevents conflict in the future.
Above all, remember investors are people, too. Besides a boost to your bank account, what else do you want to get from your partner? Ask questions and do research to determine what kind of investor your company needs. Find someone who can act as both a willing backer and a wise mentor to help your business thrive.