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Five Things to Consider When Choosing an Investor

by Olusegun Egbeyinka

Although as a startup founder you are likely to be in need of urgent capital to scale up your business and realize your dream, you still have to be careful about the type of investment you accept. Not all that glitters is gold. Despite needing funds for your business, you shouldn’t jump at every offer made to you. Whats app founders had the opportunity of receiving as much funding as possible from venture capitalist firms, but they chose only to be funded by Sequoia Ventures. This was because they had an idea of what they wanted their app to be (they vowed never to make money off placing ads in the app which would muck up user experience), and allowing too many hands in the cooking pot will mean the loss of this idea.

Even if your startup idea is not as grand as Whats app’s, you still have a vision of what you want to achieve, and allowing investment from the wrong source could mean the death of this dream. Below are some guidelines on what to look out for in potential investors;

Industry experience and knowledge:

The best type of angel investors are those who have a good knowledge of the industry in which you operate. One who knows what you do and have an understanding of your specific business environment. Most likely these investors have been there and they have built successful businesses within that same niche so they are in a very good position to offer feasible advice in addition to capital.

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Business or investing experience:

Another factor to consider is early stage investment experience. It is advisable to look out for angel investors who were once entrepreneurs and have built successful businesses or those who have invested in early stage companies that have gone on to be successful. Such experience will be highly invaluable as they would be in a better position to guide you through the process of making your startup successful.

The questions they ask:

You can get to know the depth of knowledge an investor has in your industry and how interested they are in what you are pitching by the type of questions they ask. An experienced investor will not ask peripheral questions such as market size but would rather go deep into the specific aspects of your business and ask detailed questions about your product and how you plan to tackle your competition which they may even know by name.

The size of their investment and business network:

Typically, angel investors and venture capitalists usually invest with other investors. These other investors are particularly helpful when it comes to raising more capital in later rounds of investment. Aside from investment network, you need an angel with a strong business network, who can open doors to suppliers, distributors, and possibly even customers.

Can you have them as your boss?

Although you may still be the ultimate owner of your business, having an investor on board means you will have to relinquish a certain amount of control. This is particularly in areas where the investor has far greater experience than you do. This can be quite discomforting for first time entrepreneurs, who are used to always calling the shot and having things go their way. You need to be sure you can work comfortably with them on a fairly regular basis, particularly during the early days of the relationship. The litmus test for this is to ask yourself if you can work for the investor if they were the ones running the business. If the answer is a No, then you would probably not be able to cope with them as partners.

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1 comment

Tobi adekunle August 4, 2020 - 8:16 pm

Very Educative article. Thank you


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