At some point, most startups seek capital. Choosing the right investor is a crucial desion, which can make or break a startup company. Sisense cofounder Aviad Harel sets out important principles that will help entrepreneurs recruit the right investors.
Finding the True Believers
One of the main challenges confronting young entrepreneurs is to find the right partners that will help the business grow. Finding a good investor means identifying a mentor, especially if you are in your first startup. In other words, besides deep pockets, you should seek out an investor who truly believes in your product, and has the drive to promote your startup.
Investors who choose to get involved should have relevant experience, understanding, and deep knowledge in the industry that you work in. This is not the only factor to consider when choosing an investor, but it is certainly a factor that must be taken into consideration.
Network sometimes trumps dollar
You do not have to choose the investor offering the most money or the best terms; sometimes the smart choice is the second-place financial offer, from an investor with other assets that they bring to the table. One of the common approaches is to choose an individual who can help in networking and make introductions when needed. It's better if you choose to work with connected people with a wide and relevant professional network that can leverage your idea and product forward.
One voice
Many entrepreneurs also want to know the ideal number of investors to take on. The short answer is: There is no magic number.
To be sure, no matter how many investors you have, you need to ensure that all of them are "talking in one voice." expressing mutual and positive thoughts about the company and product.
An important consideration is the fact that you’ll need to explain what you’re doing to every one of them. If you have too many, you will be spending too much time communicating, and not enough time running your company.
Researchers say that two or three financial sources are a good start for any startup company. Find those sources and make a simple plan for making a better connection between them
In this context, you will need to be vigilant to avoid a potential conflict of interest between the various investors, and between the individual investors and their portfolio companies. Obviously, if you have an investor that has given money to you and your closest competitor, you can run into serious problems down the road.
Business conflicts aside, you’ll want investors who, themselves, avoid conflicts of an interpersonal nature. An investor who is constantly battling your other investors isn’t just a problem for them - it’s a problem for you, which will turn board meetings into a continuing nightmare.
Investment terms
Personal qualities are extremely important, but that doesn’t mean that you shouldn’t focus on investment terms. Every experienced entrepreneur will tell you that the investment conditions are critical. There is a significant difference between whether you chose to go with a private investor (Angel) and whether you chose to go with a venture capital fund or other financial financing. You need to plan carefully to ensure that you have the right type of investor at the correct stage of your firm’s growth. To this end: Prepare an outline and build a long-term financing strategy.
Depending on your disposition, it’s either God or the Devil that is in the details. There are investors who will demand conditions that are favorable to the founders, and may even impact your ability to grow your business - these are conditions that you as entrepreneurs should be aware of.
Boss or partner
Investors are much more than sources of money. When choosing an investor, it’s important to study the financial terms carefully, but also spend as much careful consideration when looking at the person.
No matter how carefully you prepare, sometimes your business doesn’t go according to plan. It’s at those moments of uncertainty that you find out what kind of partners you have.
Choose poorly, and your investor could end up being your boss. Choose wisely, and your investors can be the partner who helps see you through the hard times, helping you succeed in your current effort, and even future ventures.
Investors are much more than sources of money. When choosing an investor, it’s important to study the financial terms carefully, but also spend as much careful consideration when looking at the person. Choose poorly, and your investor could end up being your boss. Choose wisely, and your investors can be a partner who helps you see current and future ventures through to successful outcomes.
Published by Globes [online], Israel business news - www.globes-online.com - on August 13, 2017
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