Select the Right Investor for your Startup

There’s a point along every entrepreneur’s path to success where the option is either to acquire capital or watch your company crumble because of lack of extra funds being available. But there are subtleties to money that all entrepreneurs should know.

It’s important, for instance, to know that the right kind of funding can have a huge impact on the direction of your company. These concerns reflect what small business owners everywhere face. Capital is easier to access than it has been in the past, but it is still imperative that owners choose the funding source that will best match their specific needs.

Here are some tips for finding the right investor(s).

1. Understand the different investment options

The options in the types of investment options you should be aware of.

  • Private equity (PE). PE covers a number of investment types that are usually made by private individuals or privately-owned institutions to purchase a company, fund a project or make a private investment.
  • Venture capital (VC).  VC investments are managed differently and usually designed to fund startup companies with the potential for high growth. VCs also provide startups business-planning expertise and assistance.
  • Angel investing. Angel investors are high net worth individuals who seek high returns through private investments in startup companies. They provide similar startup financing as venture capitalists in smaller amounts.

Entrepreneurs looking for funding should also consider government venture capital programs available through the SBA’s Small Business Investment Company program. These are privately owned investment funds guaranteed by the SBA to offer equity and debt investments to small businesses.

How do you choose between seed investors vs. angel investors and venture capitalists? “If you need a small amount of money to get going, you’re looking for seed money. A seed investor invests tiny sums into a company during its earliest days, hoping to grab a percentage of companies before they explode.

2. Know what you want investors to provide

How involved do you want your investors to be?

When meeting with potential financial partners, “You’ll want to ask questions about their most recent investments, what they typically provide to companies, their expectation of CEOs and how involved they like to be.” All of these questions can help determine whether the partnership will be the best one.

When it comes to potential investors include: their area of focus, the stage of development they invest in and their reputation.

3. Perfect your pitch to find the right match.

Take time to think about what you want to say. How will you share your mission and attract someone who shares your vision? Start with a great pitch deck. The pitch deck is arguably the most important document you will generate in the life of your company. It is ‘the hook’ by which you will capture the attention and imagination of an investor.”

Discuss how your product or service will solve a problem. Fine-tuning your pitch based on the investor you’re pitching to.

When you’re raising capital, you may feel that you should accept any money that comes your way. This approach is wrong, like any relationship, the wrong one can pull you in the wrong direction, whereas the right one will take you where you need to go, faster, more efficiently and as part of a winning team.

3 Comments to Select the Right Investor for your Startup

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