Much of the writing on this topic focuses on how investors go about making their decisions on which companies to back – whether the product and proposition are strong enough, is the vision believable, are the founders credible, does the product or service address a real (and large) market opportunity etc.
But if we assume for a moment that as a founder in search of funding, you’ve done the prep, ticked the boxes and you’re confident that your proposition has the legs it needs to get potential partners leaning in to hear what you’ve got to say – it’s worth giving some thought to what your criteria are for seeking out and ultimately choosing an investment partner. Take time to consider what you can get from a deal, over and above the desired cash lump sum.
So our advice is that you focus on these five areas when assessing your investor partner
For a lot of early-stage and start-up businesses – the cash looms large in their decision making. How much, delivered when, with what conditions – and importantly for what equity? Naturally, when it’s your business and your baby – this is important stuff. But we would urge every early-stage company considering outside investment to come to the table with eyes wide open. When we (and any investor worth their salt) put our money in, we do so to help our investees to grow quickly, profitably and more sustainably than they could expect to alone. But this inevitably involves an exchange. In return for cash, an investor will expect to exercise some degree of control over the recipient. It pays to explore what this means in some detail. If you think you’re likely to suffer control issues – better to get into therapy. Better not haul them to the negotiating table when you’re trying to cut a deal.
2. Think about the fit
How well will your product or service sit within your prospective investor’s current portfolio? Naturally, you will reap the benefits if your investor understands your sector and product or service. Moreover, if your investor is already accomplished in your space, chances are they will have important insights to bring to bear - a network they may be able to leverage on your behalf – helping to forge valuable connections with potential customers or onward investors. All these things bode well for a full and productive partnership that goes beyond the balance sheet.
3. Test the chemistry
What’s your chemistry like with your potential investor? Do you get along? Do you know who you’ll be dealing with regularly – and do you have a good rapport? Imagine your early funding partner as your teammate in a three-legged race. You are tied together… for a considerable length of time. Communication and coordination are going to be key to your success – do they come easy? The relationship has to be healthy if it’s going to create that all-important win-win.
4. Hands-on or hands-off?
It’s worth giving some thought to the level of involvement you want or need from your investor. Some traditional venture capitalists are fairly hands off, Angel investors may get more hands on – but there isn’t a one-size-fits-all rule. We would encourage entrepreneurial founders to think beyond the support the feel they want…many early stage businesses like the idea of being left to get on with it. However, time spent asking yourself how much help and support your business really needs to move forward fast is likely to be time well spent. In our experience, the really smart money goes beyond the financial transaction.
In addition to a substantial lump sum, our portfolio companies benefit from a contracted pack of support services that are crafted to meet the exact needs of the investee business. Our aim is to shore up the team’s talents and capabilities, to help them go further faster. We plug in operational resources that support the founders in reaching their go-to-market milestones, push their products to revenue and begin to scale their businesses. For us it makes perfect sense – we succeed when our portfolio companies do. But not all investors are created equal in this respect – so it pays to be clear on whether your deal comes with and additional value added.
5. Time is money
Let’s face it – for most start-ups, the clock is ticking. You probably want and need funding to help your business progress to profit. But how long will that take? How much runway will your funding buy you? How robust are your planning and road mapping? If you’re pitching to investors (and it’s going well), pay close attention to how they respond to your projections. Getting new products and innovations to market can be a bumpy ride. We believe that it’s good to get a constructive challenge from your potential partner – particularly if their experience high-lights previously unconsidered problems and pitfalls. After all, forewarned is forearmed.
When it comes to the crunch
If your idea is strong, your market need is well researched, your technology works and your people have both courage and commitment you should be well positioned to attract investment – even if it takes a number attempts. Remember, if your idea is unique, then cash is the commodity. With a powerful product and proposition – you should exercise your right to choose an investment partner that feels right for you.
But take time to do your homework. Come to the table prepared. Think about what your investor is going to want and need from you, as well as what you want and need from them. Remember, this is a decision that is likely to fundamentally influence your journey, your experience and your business’ results. It really pays to be in the very best company when it comes to choosing an investment partner.
If you are an early stage IoT company, looking to take the leap and find your ideal partner, we’d like to hear from you. Get in touch!