Selecting your investors

Startups are usually not in a position to be choosy about whom they can accept funding from, and quite often after a number of rejections end up taking money from whoever willing to fund them.

 

However, while signing up your investors, it is critical to check the following:

  • Will you enjoy working with them? While this is a difficult one to take an objective view on when you really, really need their money, it is a critical question to ask. Attitudes to investee companies, style of working, matching of personalities are critical components in ensuring that investor & investees enjoy working with each other. In startups, in my view, it is ideal that the founders and investors can have a friendly relationship. And this does not mean not being professional… but an easy going, non-formal style of working is helpful in a startup stage when things are not going to be as predictable as they are in a growth stage company.

 

  • Is the personality, ethics, value system, aggression, compassion, etc. of the investors in line with the personality of what I want to build. Different people have different styles of operating and if these styles are in conflict, it may lead to disagreements in how you handle the business, especially how you tough situations.

 

  • What’s their outlook to your business and are they willing to wait out the difficult times? While your investors and you may agree with the potential, some investors have a ‘spray and pray’ approach. I.e. they invest in many companies, especially in emerging sectors, and see which ones quickly show signs of success. They are quite happy then to disengage with the slow movers and back the early-successes. In such situations, if your startups does not really take off as expected, and most don’t, you may be left in a corner.

 

  • Do they have experience of working with startups at your stage. There are clearly different investor groups who specialize in different stages of the company. Angel investors will invest in the concept stage, early-stage VCs will invest in the post proof-of-concept stage and VCs/PEs will participate in the scaling-up stage. Different stages of a company require different competencies and therefore different interventions from the investors. Investors who usually deal with growth stage companies may not have the patience or experience in dealing with the nimbleness and direction changes that a startup may have.

 

Of course, it helps to connect with companies that the investors have funded and understand about their experiences with the investors.

 

 

 

 

 

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Author: Prajakt Raut

Prajakt Raut is the founder of Applyifi.com, and author of the book for startups - ‘Starting Up & Fund Raising’ Prajakt personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs. _____________ Prajakt is the founder of Applyifi - an online platform that provides startups a 36-point scorecard and assessment report on the venture's investment readiness [www.applyifi.com], and helps them improve their odds of getting funded. Prajakt is also the founding partner of The Growth Labs, a platform where growth-stage companies get sharp, incisive advice from senior professionals and experienced entrepreneurs. [www.thegrowthlabs.in] Before starting Applyifi, Prajakt was the head of operations at IAN, founding member of a leading incubator, and the Asia-Director for TiE (2004 - 2007). Previously Prajakt had co-founded Orange Cross, a healthcare services company, and was part of the founding team member of Idealake Technologies. While in college Prajakt had founded a printing business and has spent over 10 years working in leading advertising agencies. Prajakt’s book, ‘Starting Up & Fund Raising’, helps startups understand an investor’s perspective, and helps them improve their odds of getting funded. The book also helps entrepreneurs understand the building blocks of a business.

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