So you’ve got an investor interested in your idea. Cool. However, just because someone has money and are willing to invest, doesn’t mean they’re going to add value to you or your company.
Before you give up a piece of your company’s pie to a complete stranger, ask yourself these 5 critical questions:
1. What value can the investor really add? Choosing an initial investor is a lot like getting married. So you need to ask your self: do you want someone who will just give you boatloads of money and leave you alone? Or do you want someone who understands your business, market, and what you are trying to do.
2. Does the investor know anything about your business? How many times has the investor invested in the market you are entering? Is it their first time or their third? Without prior experience the investor may not have the right network in place to help you grow.
3. How committed is the investment firm to your type of business? Does your potential investor have other portfolio companies in the same space as yours? Is your company an experiment to test out a new market? You want your investor and their firm to be strong advocates and committed to the category you are working in, otherwise they may not have the resources to provide help when you need it.
4. At what stage is the potential investor in his or her career? If a VC is relatively new to their career, their lack of experience could be a real issue. A person in the early stages of their career will not have as strong of a track record as someone who has been around the block. Understand their motivations. Are they trying to establish themselves in their firm? Or are they trying to establish you in the world.
5. How much capital is the firm allocating or reserving for your company? Make sure to find out future funding plans. How will they plan on supporting you in the future? Or is this the only funding they plan on giving you. This is crucial because if and when you decide to expand, it’s critical to know what resources are available to help facilitate that growth.
Once you have the answers to these questions, and have figured out the best course of action, ride off into the horizon and change the world.