How does having the right investor help startups?
As an early-stage startup founder, it’s natural to believe you should accept capital from any source. Investors play a vital role as entrepreneurs strive to get their products and services to market and develop their businesses. The funds they bring to the table can help a startup gain traction and reach the next level.
However, even when investors have the greatest of intentions, they might interfere with a startup’s best-laid plans. It’s easy to overlook warning indicators that an investor isn’t the perfect fit when you’re looking for money to recruit additional employees, market your product, and swiftly boost sales.
It may sound corny, but it’s true: selecting an investor is similar to selecting a match. You’re in for a long haul, so take your time before making a decision. Recognize the attributes that are important to you and your company. Also, before engaging in a professional relationship, take the time to get to know the other person.
In this article, we will look into the types of investors a startup needs to look out for and determine whether they are fit to be part of the business journey.
Types of Investors that startups should consider
There are 3 different types of investor a startup business needs to look for. Depending on the type of business and the stages it is in, these investors may be able to help. Here are the 3 different types of investors:
Angel Investor
Angel investors, who are often former entrepreneurs themselves, are often high-net-worth individuals who invest their own money. As a result, they are incentivized to be more cautious in their decision-making, and they tend to invest less than venture capital organizations.
On the plus side, they’re frequently willing to invest earlier in the process, such as in the seed round. Angel investors are frequently interested in funding something that interests them personally, such as local entrepreneurs, businesses in their field, or concepts they believe in.
Finding the appropriate angel could be difficult. While these investors may be looking for investment opportunities, they often lack formal submission systems or inexperienced analysts to filter through a large number of company plans. As a result, you should begin networking locally.
You can also look for and follow angel investor websites and networks, as well as local and online angel investor events. Then you can look at specific angles to see if any of them are in your field or have a similar emphasis.
Venture Capital
Partners are the most senior members of a venture capital (VC) firm, with a managing partner often serving as the final decision-maker. Venture capital firms do not make direct investments in businesses; instead, they invest on behalf of limited partners (LPs), who provide the funding.
In certain circumstances, these investors contribute “follow-on financing,” which means they will fund successive rounds following their initial investment to allow the company to grow without the need for new external partners.
You should look into your personal network to locate companies to collaborate with (cold introductions do happen). Accelerators frequently assist founders in connecting with possible investors. An introduction from an entrepreneur who has already produced positive results for the company can help you get your foot in the door.
Corporate Venture Capital
A subset of venture capital is corporate venture capital (CVC). These firms’ partners make investments on behalf of established enterprises that invest in startups — often ones operating inside or adjacent to their main industry. Unlike VC investments, CVC investments are done with corporate funds rather than limited partner capital. A corporate VC firm is GV, the corporate venture arm of Alphabet, Google’s parent company.
How does one pick the right investor for the business?
Finding potential investors can feel like the end of the story, but you owe it to yourself to keep the dialogue continuing until you’re convinced you’ll work well together. When deciding on which investors to seek for your fundraising, consider the following factors:
Industries Expertise
Finding investing partners that understand the ins and outs of your sector, preferably through hands-on experience, is usually a smart idea. These investors should have a thorough understanding of how the industry has historically developed through time, the market factors influencing it now, and where it is headed. When your investors understand your industry, they can offer insight and practical recommendations on how to address the market and prevent mistakes.
Hands-on Expertise
Investors with functional expertise are well-versed in some or all of the fundamental skills of entrepreneurship and fundraising. Essentially, you want your investors to understand what they’re doing so that they can assist you in taking your firm to the next level.
Useful Connections for you to link up with
A strong network may also provide you with personal mentorship as well as advice on how to improve your business plan, operations, and other potential areas for improvement. Examine the size and geography of an investor’s network, as well as the industries and functional skills represented.
Robust and Consistent Track Record
An investor with huge pockets may appear to be ideal, but if they have no experience with businesses like yours, you may be better off without their funds. Look for venture capital firms that have a track record of successful investments and exits. One technique to assess a company’s track record is to look at its gross internal revenue (IRR). Firms having a greater IRR over time are supposedly more seasoned and better prepared to assist you in growing your business.
Consistently build a Stronger Network
You’ll know when you eventually connect with an investor with a track record of investing in unicorns. And you’ll see why they’ve been so successful. When you hear about their backgrounds and meet the companies they’ve worked with. You’ll see how their skills in talent recruitment, marketing, and sales may assist you in realizing your ambition. You’ll also understand that a solid investment is about more than just money.
To sum it all up, startup businesses need to build strong and great networks that will be able to become pillars of the business. That way, a good investor will be able to understand and ride the ups-and-down in the business and support to grow the business to greater heights.
Get Business Valuation to Find the Right Investor
Now that you know where to look for investors and how to attract them to your business, it’s time to educate yourself on the many sources of capital available to you and the steps you’ll need to take to secure each one. Always know about your funding possibilities and determine which are most appropriate for your business at each development stage. Eqvista can help you with your business valuation. To learn more, feel free to reach out!
