For entrepreneurs seeking funding to expand their business, choosing the right investment partner is critical. It is essential for start-ups to understand what investors are looking for in a potential investment. In an ideal world, an entrepreneur can choose from different investment options, not just one.
As experienced investors in early-stage businesses, we have strict criteria. We have seen nearly 1,500 companies over the last three years and, so far, chosen to work with just over 20. Our guiding principle is “people first, products second”. The most common reason start-ups fail is not their product but their management. We want to take companies from seed stage to Series A readiness and beyond. This focus means us working with entrepreneurs who understand their strengths and weaknesses, and can build strong management teams, with the right mix of skills, to reach the next level.
If we assume that as an entrepreneur in search of funding, you’ve ticked the boxes and your proposition has legs, it’s worth thinking about your criteria for choosing an investment partner. This partner could be an Angel Investor, VC or Crowd Funding platform. Our advice would be:
Any investor worth their salt wants the company to grow quickly, profitably and sustainably. In return for cash, an investor might expect to exercise some degree of control. Traditional venture capitalists are relatively hands-off, Angel investors may be more hands-on, and crowdfunding is entirely hands off. However, there isn’t a one-size-fits-all rule. It pays to explore what they expect, especially if you’re likely to suffer control issues. Consider whether you want or need support beyond the financial. An accomplished investor in your space will have valuable insights to bring to bear. In our experience, the smart money goes beyond the financial transaction.
What’s your chemistry like with your potential investor? Do you know who you’ll be dealing with regularly? Communication and coordination are going to be crucial to your success. The relationship has to be healthy if it’s going to create that all-important win-win.
You probably want funding to help your business progress to profit. But how long will that take? If you’re pitching to investors, pay close attention to how they respond to your projections. Getting new products and innovations to market can be a bumpy ride. We believe that it’s good to get a constructive challenge from your potential partner – particularly if their experience highlights unconsidered problems and pitfalls.
An entrepreneur should be well positioned to attract investment if their idea is good, they understand their market, the product or service works, and they are committed – even if it takes a number attempts. Remember, if your idea is unique, then cash is the commodity. With a compelling proposition – an entrepreneur should exercise their right to choose an investment partner that feels right for them.
By Tim Stone, Venture Partner, Breed Reply. Breed Reply’s is Europe’s leading investor in early-stage IoT businesses.