Getting funding is a major part of starting and growing a small business. For many businesspeople, that means finding the right investor network. While it can be tempting to say "yes" to any investor willing to fund your company, going into business with the wrong team can lead to big problems in the future. Here are four considerations before you set out to win investors over:
1. How Would You Divide Control of Your Business?
Investors usually require a portion of control of your business in exchange for their financial support. How much control do they require, and how much are you willing to concede? No matter how well-funded or business-savvy your investor may be, it's important to make sure this move will take your company in the right direction. Your investors should understand what makes your business unique, and share your goals for where you want to take it.
The division of control should be carefully spelled out in any contracts you sign, but it's also useful to talk about how involved your funders want to be in day-to-day operations and decision-making. Personality issues are also vital: If you don't share the same communication or management style, it's probably best to keep looking for another option.
2. What Is Their Track Record?
Look carefully at how your potential investor has helped other businesses. Ask for references and information on other startups or small businesses they have worked with, and go further by asking around the business community for more background on their track record. Talk to other business founders and partners to see how helpful the investor was and how they resolved conflicts. Make sure your potential investor is respected in the business world — you don't want your business to be associated with someone who has a bad reputation.
3. Do They Have Experience that Directly Benefits You?
Members of your investor network may bring much more than just money to the table. Find out where their business skills and experience lie, and consider how these could most benefit your business. For example, imagine you own a hardware supply company. You know your wrenches and screwdrivers, but can't get a handle on marketing or cash flow management. An investor with a marketing or financial background may be a good fit, even if they don't know much about hardware.
However, if your biggest business struggles are industry specific, you may need someone who knows your particular field. They should have experience in what works and what doesn't, know the characteristics of your customer base and be familiar with your competitors. This knowledge can help them provide valuable advice to help your business grow.
4. Do They Have Valuable Regional, National or International Connections?
Depending on your business expansion plans, consider what a potential investor offers in terms of their business network. Do they have valuable contacts in the regional, national or international business world that could benefit your business? This can be particularly helpful if you're looking to place a product with a retail chain, for example, or expand to another state where you have little experience.
When it comes to investing in your business, interviewing goes both ways. While it's important to prepare for the questions you'll face from potential investors, it's just as important to vet these individuals to ensure they're a good fit for your company.