How to evaluate potential investors to find the right fit
When thinking about approaching an investor, you need to consider the merits of your business
So, you need an investor but don’t know where to start. Finding an investor is one of the hardest things you will ever do in setting up or maintaining capital for a business. With fewer venture capital firms and more businesses, the competition for funding business new or old is fierce. When thinking about approaching an investor, you need to consider the merits of your business and whether your project would be right for the investor’s portfolio. There are many ways to analyze possible investors and it’s vital to approach the process from the right perspective.
Consider what you need
Before you search for an investor, you need to make a list of what type of investments you need and how much money you will need to help fund your business. There are many companies that do not deal in venture capital, so sites like CrunchBase can help you weed out the investors that would not be of use to your business. CrunchBase reports like Fisher Investements' for example can be useful for determining the credibility of an investor and the types of funding they may offer. Since Fisher Investments does not offer venture capital, this information could save valuable time.
What types of business is the investor working with?
Before you pitch your business to an investor, you need to research them and their portfolios to see if your business will interest them. If you are working in engineering, you probably wouldn’t pitch to a pharmaceutical investment firm. There are matchmaking sites online that will pair you with potential investors and allow you to vet the investors as well.
Ask a mentor for help
With a business mentor, you have access to a lot of valuable resources. In fact, your mentor might have tips on what to look for in an investor or may know of someone who is looking to invest in your type of business. There is power in networking and many of the big names like Goldman Sachs won't let you in the door unless you know someone they do, or someone vouches for you and your investment pitch.
Are your goals the same?
Consider the relationship with the investor over the amount of money they can offer you. If your goals are not the same, then you may not be the right fit for each other. Investment is not always about money. A quick review of an investor’s portfolio will show you if your business might be a good fit.
Read reviews
Just because the investor is putting up the money to invest in your business, doesn't mean they are trustworthy, or even the best people for the job. When you partner with someone you are asserting their image. If the potential investor has said or done anything in the past that is undesirable, that could come back to haunt you and ruin your business later down the line. Don't be afraid to ask the potential investor about their personal life, or past business relationships. If they get offended, the worst they can tell you is that they are not interested in working with you. Remember, it is your business and your reputation on the line if they make a mistake, so don’t be afraid to address any issues before you form a relationship. Moreover, if you sense the investor is holding back, there are many cheap ways you can perform a background check on someone.
Ask for references
Any serious investor will be proud of themselves and their investments. As such, they should be able to provide you with a list of references, or even show you the books so you can see their track record.
Use investment sites to vet potential investors
There are many sites like TheFunded.com that pair investors with businesses and are a great place to check up on a potential investor. They list all the pertinent details and you can refine search results to align with investors who are specifically interested in your line of work.
Start networking
There is a lot of competition for investors' money, so a great way to get an introduction or bring the investors to you is by networking. There are many clubs and online groups in which you can get started. Even if you are unsuccessful in getting information for a potential investor, you will have a network to use for references and reviews of investors.
The takeaway
As you can see, there are many ways you can vet or analyze a potential investor and it is important to do this vetting if you want your business to be a success. The right investor has to see your potential and have a portfolio that aligns with your business for the best possible outcome of long-term sustained success in your chosen field.
