There’s a reason not all CEOs end their time on Shark Tank by exclaiming “You’ve got a deal!”. As you’re racking your brain to figure out how to find investors, it can feel like a no-brainer to take any money that’s offered to your business. But taking a step back to evaluate whether the investor will make the right long-term partner is critical. After some digging, you may find that for one reason or another, the “deal” just isn’t worth it. Issues like equity requirements, extra board seat requests, and more can deter you from moving forward with an investor. Or, your research may help you determine that the investment is actually a perfect fit!
3 ways to evaluate potential investors
Once you’ve figured out how to find investors for your business and funding has been offered, it’s time to get to work (before the celebration starts). There are endless ways to determine if an investor is the missing puzzle piece you’ve been searching for or a square peg you need to fit into a round hole. The three we’re focusing on below, however, are fundamental in making sure a deal will benefit you now and for the long haul.
Expertise
A great investor won’t simply hand you a check and go searching for their next deal. Finding the right person (or firm) also means being privy to their knowledge and expertise. If they have extensive experience growing companies with your specific business model or can help you make connections in the industry, that’s worth a lot. Investors can also advise on how to spend cash wisely while guiding you to navigate road bumps as they arise. Because let’s face it, challenges will come up but chances are, the investor has been there before and came out on the other side.
Remember, those giving you money to spend on your business have a vested interest in having that same investment multiply over and over again. So, make sure to understand the role the investor plans to play in your overall business before accepting any funding. Get a good grasp on how that same investor has helped similar businesses grow their profitability.
Cultural fit
As you’re considering how to find investors, remember that they’re not all created equal (especially for your particular business). Partnering with an investor who gets the bigger picture of what you’re trying to do in your business will help you achieve your goals even faster. And being on board with your company’s mission and vision from the start will ensure they won’t try to make unexpected foundational changes (that don’t appeal to you) later.
For example, if you’re a company that believes wholeheartedly in remote work, partnering with an investor that values in-person collaboration the majority of the time will be challenging. Knowing upfront what your investor prioritizes will quickly tell you if you’re aligned. Take a look at the other companies your potential investor has funded. Do those organizations’ values match yours? If so, you’re likely on the right track with this opportunity.
Offer terms
When you get down to the nitty-gritty, those offer terms need to be reviewed with a fine-tooth comb before any paperwork is signed. There are different investment types and each comes with its own set of rules. Is the investor seeking a debt investment, equity investment, or convertible debt? Make sure you fully understand and feel comfortable with the offer, knowing that investors want a win-win situation for both parties but will set the terms of a possible deal with their best interest in mind.
If you don’t already have one, hire an attorney to help you better understand each part of the deal. Having someone review the details on your behalf will ensure the agreement is as beneficial as possible for you, too. Having total clarity about what you’re committing to is a must.
When you figure out how to get investors for your business you’ve already made major progress. Congratulations! Just be sure to do your due diligence to feel confident that the investor will be a solid partner. Find other CEOs who have successfully accepted funding as well and ask how they navigated the process to ensure the deal was a good one.