Finding an infusion of capital to take an enterprise to the next level--or far beyond the next level--is the dream of countless business owners, and not just among small and medium-size companies. The popularity of Shark Tank attests to that. But when your business is fortunate enough to attract a potential investor, you have to consider carefully what that investor expects to gain from the relationship and whether that's compatible with the direction you envision taking.
The right investor can help vision, provide guidance and expertise, and enhance your company's reputation, while the wrong investor can, in Richard Branson's words, "dim the spirit and enthusiasm of a new enterprise, muffling the spark that prompted you to launch this project."
So the relationship itself is as important as securing the financial resources you need. Here are a few things to bear in mind as you search for an investor and weigh your options:
Does your potential investor already have expertise or experience in your field?
Having an investor who knows something about your industry can be a huge plus, because they're more likely to understand your market, the challenges you face, and how you differentiate yourself from your competition. However, it's important to consider whether the investor's knowledge is tied to conventional thinking that your company is trying to surpass. The more innovative you are, the more important this consideration becomes.
What is your potential investor's preferred level of involvement?
Learn everything you can about the potential investor's role in other companies with which they're associated. Do they tend to be hands-on, meddlesome, distant, content to stay out of the way? How much of an effect are they likely to have on the way you do things day-to-day? Would they change your company's culture, and if so, would that be a dealbreaker?
What patterns are there in your potential investor's other holdings?
Ideally, an investor should share your company's vision and outlook. What other enterprises have they invested in? Do those activities and their role in them indicate they're likely to be on the same page with you or that they will try to bring you around to something out of line with your vision?
Does your potential investor have a positive outlook?
Being upbeat at the beginning of a business relationship goes a long way toward setting the right tone. Communicating confidence strengthens your brand as well as shoring up internal morale in an environment of change.
Staying positive as the relationship progresses is also crucial, because there's no such thing as a business that encounters only smooth sailing, and this is especially true early in the life of a company. It's also a given in any industry that's undergoing rapid change, and since that's most industries today, difficult times are to be expected. Is your potential investor someone who will respond with confidence and patience, or someone whose negativity might inhibit the attempt to find constructive solutions?
If your investor is going to play an active role in the company, you need for them to be capable of functioning as a team player. Their communication style and how they treat people are crucial factors to consider.
What reputation does your potential investor have?
This can mean the reputation of an individual, of a larger company, or of an investor's other holdings. You'll need to think about whether the relationship could bring you into association with anything that would be harmful to your brand. With so many large companies having such diverse portfolios, it can be surprising who owns what. Do your research carefully.
It's essential never to forget there is much more to finding the right investor than simply acquiring the money you need. Going broke is bad, obviously, but so is being broken by an investor who doesn't share your vision and values. You've set your goals, and you need investment to help you reach them. In the final analysis, the ideal investor is someone who helps you do what you've set out to do. Whether a potential investor can play that role is the question ultimately underlying all others.