Entrepreneurs often dream of investors emerging from the woodwork to help fund their company. Whether you’re a major up-and-comer who has investors salivating to get in on the action or you’ve been hitting the streets pitching to venture capitalists, there may come a time when you choose not to accept funding from an investor. Here are some tips to help figure out if your investors and your company are a good match.
Choose Investors with a Background or Interest in Your Niche
It can be critical to align yourself with investors who are a good fit for your company’s mission and vision. An investor that is a good fit will typically at least have some expertise in your niche.
Ask the Right Questions about Cash Availability and Access
Ask how much cash a potential investor has for your company. If your business needs $1 million, you may not want to pursue a relationship with someone who doesn’t invest more than $100,000 per company.
In addition, if you need funds fast but an investor or investment company takes months or longer to make a decision, that wouldn’t be the right fit.
Know Whether You Want an Investor Who Is Hands on or Hands off
Some investors expect a seat on an advisory board or a similar position in exchange for funding, while others prefer to remain silent partners and leave the day-to-day operations up to you.
Both types of arrangements have the potential to work well. The key is that you and your investors are on the same page regarding the role they will play in the daily operations of your business.
Set Up a Formal Agreement
An attorney should set forth or review all written agreements with investors. By thoroughly reviewing an agreement before signing, you greatly reduce the possibility that there’s things in the fine print that don’t make financial or business sense.
When You Must Say No, Be Gracious
If you’ve created a solid business model and achieved profitability, potential investors may start to swarm. Ultimately, you may find yourself in a position in which you must turn down an offer.
Be gracious but honest. Tell the investor the specific reasons why you’re not interested, whether it’s giving up too much equity or if your business currently isn’t prepared for growth.
By considering investment deals carefully, business owners can assess potential investors and align with viable partners.