Finding the right investor for your startup is crucial to moving your startup in the direction you want. However, the actual value of an investment may come from something more than the funds your startup is getting from the investor.
In most cases, the real value may be in the relationship with the investor, partners to grow your startup with or the network that investors can provide your startup from the investor community.
From a startup point of view, investors generally fall into three broad categories. The first and popular are the Venture Capital firms. They comprise partners and a managing partner who makes the final decisions on where to invest funds and exit at maturity of the investment. As you already know, Venture capitals do not invest with their own money. They invest on behalf of limited partners (LPs) who fund the investment.
Next are corporate venture capitals. You can think of them as a subject of venture capitalists. The partners in this investment group make investment decisions on behalf of large companies that wish to invest in startups. Unlike regular Venture Capitals with capital from LPs, corporate venture capitals support with money from corporate organizations.
Angel investors are the third and final investor category. They are high net-worth individuals who invest their capital in startups. They are usually the preferred investors for seed funds for new startups.
How to Select the Right Investors for your Startup
Sieving through the hoard of available investors that might be right for your startup could turn out to be a daunting task. The funds they provide are primary. However, investors have a lot more to provide to startups. The selection process may require you to remain open-minded and be confident with your decision when selecting the right investor for your startup.
To help you with your decision-making, here are some criteria you should consider:
Before you start to look for investment, you need to understand your motivation and what you aim to build. Different startups have different goals. The uniqueness of your startup and the goals you set out to achieve helps you understand what you are doing and your startup’s needs. This will help you make the right choice among the available investors who want to invest in your business.
Understanding your startup goals is also vital for positioning your startup to attract choice investors. These goals help you draw out metrics and standards that investors must meet before considering them as viable partners. They also align you with investors who share your passion and motivation to make your startup dream a reality.
Now that you have a solid bearing of where your startup is heading, you need to conduct extensive research on the investors you are considering and their successful investment portfolios. All the information you might need is online, and you will find them when you are specific about what you are looking for. Teaming up with an investor with successful companies in their portfolio matters significantly. Mainly because success drives more success. If you have successful investors in your corner, you have the opportunity of exploiting their network to meet more successful industry leaders.
These days, startups need more than just funding. When choosing, you want to select investors who have a history of successful investments in startups like yours. You can evaluate their success by tracking the IRR record of the successful startups in their portfolio. Several of the investors who might come your way are former entrepreneurs who own successful startups. You might want to do a background check to know how they relate with startups if their investment does not scale.
Experience in Industry
Another crucial criterion is to find an investor with expertise in the ins and outs of your startup’s industry. Your ideal candidate should have hands-on experience. They should also have deep knowledge about the historical changes in the market you are playing in and where the market is heading. The knowledge and foresight you can get from them will help you navigate the market and avoid pitfalls you might be ignorant about in your startup journey.
Platform for Growth
Aside from funding, your choice investor should be able to provide some essential services that help your startup grow. The right investor should be capable of providing the right platform to grow your startup with the supporting services you might be needing. Although investors are not an extension of your team, the right investor who can commit to you will provide full-time support for your startup growth whenever you need it.
Investors who invest in fewer startups may be able to commit to these startups full time to make their resources available for use when necessary.
Functional expertise comes in handy to provide foundational skills that startup founders need in their entrepreneurial journey. When growing in your entrepreneurial journey, you will want to team up with an investor that knows what they are doing and can help you take your startup to the next level.
Functional expertise varies to some certain level. Depending on your startup’s goals, this will help you determine what metric you will use to select a viable investor. You can also inquire from other founders about the investor you are in contact with to uncover what additional value they are bringing to the table asides from money.
Your investor’s network reach matters a lot. A reliable network can provide your startup with solid mentorship, business plan, operation services, and other areas of improvement in your business. Evaluating and researching the portfolio of different companies your investor is working with will help you determine if they have a solid network. The width of the network that the investor you prefer has and their influence in this space should influence your decision.
Investors’ network and reach within the world of entrepreneurship indicate their expertise, influence, and reputation in the investor community.
You’re Not Alone
We get that founding and managing a startup can be a lot to handle simultaneously. That is why we are here to help you with the platform, resources, and expertise you will need along the way. FundrsVC assists you in every area we can to achieve success and scale your business. When you are looking to select the right investor for your startup, you should pick out investors that check the boxes above.