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6 Tips for Choosing the Right Investors

Choosing the right investor is essential to the success of your fledgling business.
Andrew Deen has been a consultant for startups in almost every industry from retail to medical devices and everything in between. He implements lean methodology and currently writing a book about scaling up business. Twitter @AndrewDeen14
Andrew Deen has been a consultant for startups in almost every industry from retail to medical devices and everything in between. He implements lean methodology and currently writing a book about scaling up business. Twitter @AndrewDeen14

You’ve got your business idea. You’ve been developing the initial concept. Maybe you’ve even launched, bootstrapping your dream and making some sales. At some point, however, most entrepreneurs need to think about the next step in the process: finding investors. Of course, a few businesses manage to bootstrap all the way to profitability, but these are few and far between. For most entrepreneurs, it makes more sense to have a third party invest and help the business grow to its full potential. While it’s tempting to choose the first person who comes along and offers you money, it’s very important to take a step back and consider all the pros and cons of each investment opportunities you come across. Focusing on choosing the right investor might feel like you’re being too picky, but it’s essential to your fledgling business’s success. With that in mind, here are six tips for finding the perfect match!

1. Know What You Want

Before you start pitching to potential investors, think about what you want for your business. Do you only need a little cash to get going? Look for a seed investor, or consider peer-to-peer investing. Or, you can go with a more traditional route and seek funding from a venture capital firm or an angel investor. If you figure out what you want before you start looking for investors, you’ll save a lot of time and avoid choosing an option that’s a poor fit for your company.

2. Look for Excitement

Let’s not sugarcoat things: investors want to make money. It’s not an act of philanthropy to fund your business (at least in most cases), it’s a decision based on logic, gut, and the potential for return. That said, choosing an investor who seems legitimately excited about your product or service is always a better option than someone who is just solely focused on product. Are you going to change the world? Find an investor who believes that. You shouldn’t necessarily make excitement a requirement, but it’s a nice bonus.

3. Make Your Pitch Reflect Your Values

When you wrote your first “elevator speech”, how did you do it? Were you saying what you thought everyone wanted to hear, or were you using it to convey your enthusiasm and reflect your goals and values? Most people try to accomplish the latter, but often change things up when they’re pitching to potential investors. Some try for the hard sell, while others miss the mark entirely by missing an opportunity to talk about their goals for the projects and the organizational values. Be yourself when pitching. Pitch the idea in a way you find exciting and compelling, back it up with a solid business strategy, and the right investors will get excited too.

4. Consider Connections

As an entrepreneur, you know how important connections are—from finding your first employees to meeting your first investors. Think about the kinds of connections your investors could open you up to—it’s in their interest that you succeed, so you could make some great connections, depending on who you work with.

5. Consider Their Involvement

While investors aren’t going to be involved with the day-to-day operations of the company, some are more hands-on than others. It’s understandable; they’re taking the risk by investing money in your company, and want some involvement in how it’s used. However, it’s important to choose an investor who trusts you (and whom you can trust) and wants you at the helm of your project. Horror stories of being forced out are uncommon, but they do exist.

6. Look for Honesty

Don’t just look for the company or person who will offer you the most money. Find an investor who will be honest with you, in both good and bad times. You don’t want someone who will always criticize and never praise—but you also want someone who will give it to you straight when you need help.

Go with Your Gut

At the end of the day, only you can choose between the offers you receive. If you’ve only received interest from a firm or individual that isn’t a good fit, you don’t have to take it. Keep looking until you’ve found the right investor ready to offer you the right deal. Remember, to an investor, your business is only an opportunity to earn money. To you, it’s your dream at stake. You owe it to yourself to go with your gut.

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