- It depends - A ‘good’ investor depends on lots of factors and a good investor for one company might not be a good investor for another.
- Stage - Does the investor’s average ticket size reflect how much you are trying to raise?
- Reputation - Is the investor known for positive reasons?
- Beyond money - What other support is the investor going to provide other than financial support?
- Diversification - Is the investor similar to other investors you have interacted or raised with?
- Experience/Influence - A high degree of experience, expertise & influence in your company’s industry can be an important asset.
- Values - Does the investor share similar principles to you and approaches growth in ways that align with your own values?
- Professionalism & charisma - Do you actually enjoy working with the investor?
When you enter into a relationship with an investor, you’re in it for the long-haul. Being able to determine whether an investor is good (for you) may well therefore prove to be the difference between your business rocketing upwards or facing an uphill battle to grow and improve, possibly even starting a downward spiral.
Depending on what stage your startup is at, and what you are looking for from an investor, what makes a ‘good’ investor will depend on a number of different variables. What makes a good investor for one startup might not be a good investor for you.
So how do you determine how ‘good’ an investor is?
One of the first steps in identifying a ‘good’ investor is ensuring that the investor invests at the right stage in relation to your company and which round you are raising.
If you’re raising a Series C round, an Angel investor that typically invests >$100,000 in Seed rounds might not be for you. Likewise, if you’re raising a Seed round, then a million dollar VC that primarily invests in Series C rounds will also probably not be a wise choice.
However, regardless of whether you are raising a seed round, Series A or Series C, there are a few questions that are always sensible to ask.
What’s their reputation like?
Whilst one Founder’s opinion of an investor is not going to provide you with an objective, representative picture, asking around and speaking with several Founders (and even other investors) who have interacted and/or raised with the investor, can provide you with valuable insights into first-hand experiences. This will help you better answer the questions below and form a much more accurate picture in your mind about whether the investor is a good fit for you.
It is worth noting that even if the investor scores strongly on various factors and you believe they are a good fit for you and your startup, if they have a bad reputation they can still cause irreparable harm to your company, particularly if you try raising again at some point in the future.
A reputable investor will likely bring you more investors and customers whilst a poorly regarded one can do significant damage to your company’s reputation and thus ability to interact with other figures in the ecosystem.
How involved do they want to be in your startup ‘beyond money’?
The amount of capital an investor provides may be one of the least important factors when trying to find a ‘good’ investor. How much support and guidance do you want from an investor beyond the capital they provide?
Do some background research on previous companies the potential investor has invested in. How hands on have they been? Did they micromanage or were they distant and happy to let the company do its own thing? Do you think daily interactions with an investor would have a detrimental or beneficial impact on how your company runs? Do you want detailed, consistent oversight or more of a free rein approach to growing your company?
Is the investor you're interacting with similar to other investors you’re interacting or have raised with? If so, aiming to have a diverse range of investors as part of your cap table might be a sensible idea. Having different investors brings with it many benefits, such as greater access to different spaces, wider influence and exposure to larger networks, greater potential opportunities and different insights, opinions & approaches as to what might be best for your company.
Do they have experience/influence in your industry?
Having an investor who has experience in, expertise of or influence in your industry can be a significant asset.
An investor who has previously invested in companies in the same industry as your company, or has a team with expertise in your industry, can provide advice, guidance and help you better understand the market far better than any investor who does not.
Similarly, an investor with influence can connect you with other investors, make deals happen, help build your team and introduce you to other potentially useful players.
An investor who has no knowledge or experience working within your industry is unlikely to provide much value beyond the capital they invest.
Do your values align?
Examining the companies in a potential investor’s portfolio can provide an idea of whether the investor shares your company’s vision and purpose.
If your company cites sustainability and eco-friendly values as part of it’s operating principles, an investor who has fossil-fuel centered companies in their portfolio might not align with the ways in which you want to grow.
The companies an investor has invested in can indicate how aligned you will remain if you begin working together and the degree of symmetry that may exist in your relationship and approaches to growth.
Something often overlooked by startups keen to raise, is how much they will get along with an investor and how supported they will feel by the investing team they work with.
When you begin interacting with an investor it is important to note the emotions and sensations that arise. If multiple people in your startup are going to be interacting with the investor, this is just as important to reflect on for your team as it is personally.
Are you comfortable? Do you feel respected and heard? Are interactions characterised by honest, open communication, trust and a sense that the investor has faith in you and your team? Do you leave the meeting feeling rejuvenated, energised and motivated or drained, anxious and upset? If there is a feeling of dread when you envisage working with an investor this should be a flag.
Professionalism is not just the job that is done, it's how the job is done. A good investor will be emotionally intelligent, appropriate, conscientious and consistently achieve high standards in all aspects of their role.
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