Choosing the right investor is at least as important as building a good team. Unfortunately, there are plenty of examples of companies that have foundered because they did not choose the right investor.
Match between life stage of your company and investor
There are different types of investors. Depending on what stage your company is in, some investors are more likely than others. In the idea/plan phase, for example, you will rely primarily on your own savings, whereas in the early growth phase you will be more likely to turn to a business angel. In the downturn or relaunch phase, it makes more sense to go with a private equity firm.
So first, figure out what stage your business is in. We will assume for now that you are in the start-up and early growth phase. Then the obvious thing to do is talk to informal investors, private equity firms or cluster funds.
4 Questions to ask yourself
Once you find out if your potential investors fit the life stage of your business stage, you can take the next step. Asking yourself these 4 questions is guaranteed to get you a lot closer to choosing the right investor.
Question 1) Does the investor have the foundation to move your business forward?
Choosing an investor is not just about money. With the right expertise, experience and network, an investor also contributes to the growth of your business in other ways. So make sure you choose an investor who has experience with your market, field of work or the challenges you face. For example, if you want to start selling internationally, choosing an investor who has done so before is very valuable. Or does the investor have contacts with large venture capital investors? If so, this connection might come in handy in your next round of funding.
Question 2) Can you choose an investor who believes in you and your team?
Ideally, you want to choose an investor who is immediately raving about your business and the plans you have.