HERDING GAZELLES | Karl Stark and Bill Stewart

3 Characteristics of a Great Investor

Outside investors can propel your business and create a foundation for long-term success. The trick is finding the right ones.

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Every CEO of a growth company is faced with a primary challenge: funding that growth. In some cases, growing businesses can partially rely on customers (in the form of working capital), bank loans and founders’ equity. But at some point, most high-growth businesses need to find outside sources for growth equity.

You may be tempted to accept funding from any interested investor. But there is a huge benefit to finding the right investors—the ones that can propel your business and create an environment for long-term success.

Who are the right investors?

We’ve found that the best investors have three key characteristics:

  1. Deep knowledge and interest in your product or industry
  2. Experience with the unique challenges and idiosyncrasies of a growing business
  3. An interest and ability to actively help to grow the company and to be invested in its success

At Avondale, we have the liberty and privilege of building partnerships with investors as a primary strategy to build our business.  It’s amazing to witness the business opportunities that develop when you are able to tap into the knowledge and experience of investors who were once, and possibly still are, entrepreneurs themselves.

These individuals inevitably see business opportunities within their markets that others don’t recognize.  When you can harness that industry insight, experience, reputation and access to relationships, you can develop a strategic asset that gives you a clear competitive edge in your marketplace.

A pure financial investor, by comparison, is likely to focus on one thing: return on capital.  They may also have time restrictions on the investment that may not fit the natural evolution of your business or market.  Even established venture funds, angel investors, and private equity groups with experience in your industry may have a number of restrictions that prevent them from becoming the “ideal” investor for your business.

How do you put together the ideal investor group? 

While there’s no single right answer to finding the ideal group of investors, we’ve found that it’s best to start your search early, potentially even before you finalize your business model.  Find a lead investor who has experience building businesses in the industry and pitch a few alternative business models.  Hearing their own experiences will help you to shape the right approaches to developing a market/product strategy, raising capital, forming a management team, and creating a growth path (e.g., customer acquisition, M&A, etc.).

Once you’ve agreed on the business model and investment with your lead investor, you can approach other equity sources—VC, angel, PE or institutional investors—to fill in the funding gap. The investment will be much more attractive to these investors once the lead investor is in place.

Have you built win-win partnerships with you investors?  Are you currently looking for the ideal investor group?  Share your thoughts with us at karlandbill@avondalestrategicpartners.com.

Karl Stark and Bill Stewart are Managing Directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself, and is ranked No. 95 on the 2011 Inc. 500 list. @karlstark