Looking for an investor is a time-consuming process often compared to the task of finding your life partner – you have to kiss a lot of frogs to find your prince. Here Rajiv Nathwani, Founder and Director of Quivira Capital, talks CEO Today through the process of choosing an investor.
With so many institutions and high-net worth individuals out there looking to invest in companies, the pool is often too big and it can feel like a race against the clock to secure that much-needed capital injection. Yet, despite this wide range of options for funding sources, choosing an investor is not a decision that should be taken lightly.
To help streamline the vetting process, these are some questions you should ask yourself before signing on the dotted line.
Are you ready?
Before you start knocking on the doors of investors you need to make sure you have your books in order and are prepared for the barrage of questions that will soon be directed at you. With London alone boasting 500 start-ups for every 1,000 residents, competition is high, so you need to make sure you have your unique selling point pinned down and ironclad. Do your market research and have some answers up your sleeve on why your company is better than the one around the corner. When presenting to potential funders, don’t try and pretend that you can accurately predict the financials of your business for the next five years. Be optimistic but realistic – there is no point estimating your stationary costs in five years’ time when you are not yet revenue-generating.
When you’re pitching to an investor, don’t forget to tell them why you want them, instead of just telling them why they should want you. Investors are pitched to relentlessly, so make sure you do your research to stand out. Once you have them on board, expect them to be vocal about how well you are running the business. While you won’t be handing over complete control, suddenly there will be a new face at the table, so make sure you are prepared for that, and willing to take on board what they have to say.
What role do you need them to play in the company?
There are various types of investors out there who can come in and offer support at different stages of a business journey, so you need to ensure that the investor you select can help solve your current problem or add value to your current situation. If you an in the early stages of growing your business, securing funding will be your number one priority. While this is challenge for young companies, as the risks are much higher for the investors, ensuring you get the funds in is key to progressing.
As you grow, there will be more chances to be picky and create a more thorough vetting process for your potential investors, as there will be a greater appetite to fund your business. For a mid-stage company, investors need to provide you with industry knowledge more than money, whereas the larger you get and closer you become to listing your IPO, you will need the financial people with clout and contacts to help ensure your IPO is a success. Achieving a diversity across your investors will help you hit all the right points and ensure that any gaps in your current team is filled. Finding investors with complimentary skill sets will help you go a long way in growing your company.
Will they be honest with you?
If you company is going through a rough patch, you need an investor who will be frank with you and tell you where the gaps are that need filling. To achieve this, try to find an investor who really understands the market you are working in and will let you know if they think your strategy is misguided. At the end of the day, they have put their hard-earned cash into the business, and will be vocal about how well you are looking after it. Yet, with that said, you need an investor who will give you constructive feedback as opposed to flat-out criticism.
Every business has its bad days and you need steady hands, not people who are easily spooked or emotional. A good investor will guide you through these and you ultimately need to trust that they will have your back when you need it most.