When you’re lining up potential investors, keep in mind that it’s not a one-way interview.
While investors are sizing up your company to see if there’s a fit with their investment goals, you should be sizing up their firms to see if they support your business objectives. Anyone who invests in your company isn’t just giving you a loan, but entering into a partnership.
Much like a marriage, you’re in it for better or worse.
Here are some questions to pop during your mutual courtship to increase the odds for the better part.
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Are You Compatible With The Investor’s Portfolio?
Forbes notes that of all the questions you can ask an investor, this is the easiest to research. You’re not looking for investors with stakes in a lot of businesses similar to yours—that increases the potential for a conflict of interest.
But you also don’t want an investment partner that has no experience at all with businesses similar to yours. What you’re looking for is an investor with a portfolio of similar companies that share your business model, but with few, or preferably no, direct competitors.
Related Article: What You Need to Know Before Working with an Investor
Do Your Needs Match What the Investor Is Willing to Give?
If you’re looking for a million dollars, don’t waste your time courting investors that typically don’t write checks over $250,000. Unless, of course, you aren’t looking for a monogamous relationship and think you can get four, $250,000 investors to commit to your arrangement. Similarly, don’t approach venture capitalists that look for needs in excess of several million dollars when you’re only looking for $500,000.
Are They Experienced Investors?
As Mohr Davidow points out, most venture capitalists have a 15- to 25-year career in business. An investor that doesn’t have an established track record could be an issue. Sure, he or she may put up the money you need, but does he have the right industry connections to promote your company and brand? Can she bring in experts or other consultants to advise you of best practices and new market opportunities? How can he help your business besides loaning you money?
Related Article: 10 Things You Should Never Do While Pitching an Investor
How Involved Will the Investor Be?
Are you looking for a real partner, or just someone to put up some cash? Quora advises that you don’t want to find yourself in the position of taking a check from someone you’d thought was going to be a passive investor, only to find yourself deluged by requests for updates and meetings and unwanted advice. On the flip side, you also don’t want to be disappointed if you assumed you were going to be able to tap into someone’s expertise only to find your investor rarely offers a useful opinion on anything.
What Does the Investor Offer in Return?
Investors always have a rate of return in mind, ICIC points out. The sooner you determine what that rate is, and whether your company can realistically achieve it, the sooner you’ll know if there’s potential for sparks in the relationship or a looming breakup due to differing expectations.
How Much Time Does the Investor Need to Make the Commitment?
While it may be unrealistic to receive a yes or no after the first date, you need to assess how long a courtship is likely to go on. Ask about the investor’s decision making process. How quickly can you expect an answer? If the timeline doesn’t align with you needs, or if the investor seem unwilling to make a commitment one way or the other, it may be time to move on.
Is This Going to Be a Satisfactory Long-Term Relationship?
How much equity ownership are you willing to offer? What happens if an investor is willing to commit funds, but wants to own more of your company than you’re comfortable with? It’s usually a good idea for both sides to find the relationship satisfactory. If there’s an unbalance, if you feel you’re giving away too much or receiving too little in return, the chances are slim that you will work together happily ever after.