Having gone to the trouble of finding an investor, you may not want to question your luck. But understanding an investor’s suitability is vital.
Most people don’t like to look gift horses in the mouth. And, having gone through the long process of finding an investor to take your business to the next level, someone offering vital capital seems like quite the horse. However, not all investors are created equal, and tying yourself legally to a bad partner can be a fatal mistake. You need to ask yourself a few questions, therefore, to determine whether an investor is right for you.
Can my investor deliver?
It’s bizarre to think that somebody would commit themselves to investing funds that they do not have. Unfortunately, strange things happen in businesses, and we have seen cases where companies have been left waiting for a cheque that never comes. Do your homework on an investor’s past career and investment history to see whether there are any red flags. A prospective investor may be willing to talk about their past enterprises, and accounts filed with the Companies Registration Office (CRO) will let you check them out.
Does my investor have realistic expectations?
You’re obviously optimistic about your company’s future, and your prospective investor presumably shares that view. It’s important to make sure, however, that his or her optimism is grounded in reality. Your investor’s expectations in terms of growth and profitability need to be in line with your own – otherwise, you risk being tied to a partner who feels let down, maybe even cheated. In this situation, an investor can become obstructive, and create a pretty toxic working environment.
Does my investor’s vision match my own?
People invest in businesses for all sorts of reasons. Some buy in to the strategy of a company, while others see more value in radically realigning the business. Assuming you believe in your business plan, you want to attract the former and be wary of the latter. If an investor is taking a stake in your company where they can dictate or at least influence its direction, you both need to be broadly in agreement about your core business for the foreseeable future, what markets you will target, and products or services you will bring to those markets. Otherwise, you’re signing up to endless disagreements over strategy.
Can my investor add value?
An investor doesn’t need to be an expert in the field to help a business. He or she can have contacts in your targeted market, could offer insight to improve your business internally, or even have an idea for a related product or service that you can offer. Offering this added value isn’t essential for an investor – most entrepreneurs are happy for someone to offer capital and take a hands-off approach. However, you should think about areas of your company that an investor’s skills, contacts or knowledge can improve.
The right investor isn’t just someone willing to stump up cash – it’s somebody with the capital to actually meet their commitments, a realistic expectation regarding their return, and a shared vision for the business. If they can also use their talents to boost your company beyond the bottom line, then you’ve got a winning formula for a long-term partnership. At DCA, we assist many companies going through the process of finding an investor and sealing a deal – our experience has helped numerous businesspeople in entering appropriate partnerships, and avoiding bad ones. Just contact us if you would like to set up an initial, no-obligation meeting.
DCA Accountants and Business Advisors