What You Need to Know Before Working with an Investor

Business.com / Funding / Last Modified: February 22, 2017

So you want to grow your small business by working with an investor, but how do you choose the investor that will take you to the top?

Receiving investment is one of the earliest goals that a start-up company will set out to achieve. It is a vital part of expanding a small business to ensure it is reaching a large consumer base and providing them with the products you are selling.

Related Article: 10 Things You Should Never Do While Pitching an Investor

With around 50,000 businesses receiving funding from angel investors every year in the United States, it is a major topic for many start-up businesses. We regularly read stories offering advice to small businesses about how to attain investment when they are just starting out. We also tend to read about the steps businesses should take once they have received it.

What we don't often read about, however, is the moment in between this; when businesses are being approached by investors and they might have to choose who to work with. This is a pivotal occasion for start-up companies as deciding who you go into business with can determine the direction your company takes for many years to come.

Active and experienced

One of the most important things to remember is that the more experienced the investor is, the more attractive their offer should be. They should not only have the money to sponsor your entrepreneurial efforts (angel investments are generally between $150,000 and $ 2million); they will have the know-how to back it up.

There are few people better suited to being in business with than those with a long history of financing start-up companies - especially ones that have gone on to be incredibly successful. Business owners can check to see if the people who have approached them are active investor by using software such as Mattermark.

Understand your sector

However, you should not only make sure you are working alongside an active and experienced investor; you should also certify that the people willing to invest in your company know your particular sector well. All the experience in the world means nothing if they are ignorant about your marketplace and the unique demands and complications within it.

Early social networking site MySpace, for instance, suffered when it was bought out by Rupert Murdoch's Newscorp who, by his own admission, cluelessly "screwed up [the site] in every possible way". If you are working alongside someone who understands the field just as well as you do, you will minimise the risk of this happening.

Related Article: Why We Said No to Investors

Get to know their plans

Every business big and small has people to answer to - whether you have made a successful app like Snapchat or you are one of the most recognizable institutions in your field like the UK-based bank RBS. But it is essential that you and the people you answer to - in this case, investors - are on the same page.

You should understand thoroughly how they intend to work with your business and what their aims are for it. You do not want to enter into a working relationship with someone whose ambitions are not in line with yours, and you certainly do not want to begin one with an investor whose approach you do not believe in. How they fit into your plans is as important as how you fit into theirs.

Choosing to work with an investor solely because they can help financially can be a bad idea. Ideally, if you are lucky enough to be in the position, you should choose to partner with an investor that cannot not only provide monetary support but help bring success to your company.

They could patch some of the cracks in your business model, use their resources to your aid your endeavours, and provide the kind of knowledge and experience your team may not have.

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