Selecting a business partner or investor is a long-term commitment, so it’s important to choose wisely. Just as investors carefully select the businesses they put money into, you need to thoroughly vet the people and companies that you accept assistance from, and there are several aspects to consider.
For instance, you’ll need to find the right type of investor and make sure they offer a strong track record of success, financial stability, and goals and values that align with yours. But how should you go about systematically ensuring that you can go the distance with any investors you partner with?
Here are a few key points to consider when planning for a long and mutually beneficial partnership.
Determine What an Investor Brings to the Table
Research is an important first step when it comes to finding the right partner or investor to bring into your business. A good place to start is with an investor database like Pitchbook that can connect you with different types of investors. (If you’d like an example of what you’ll find on Pitchbook, take a look at the profile for angel investor Sky Dayton.) These kinds of databases can provide you with an overview of what to expect.
Whether you need a partner to invest and help you manage operations, an angel investor who can serve in a mentorship role, or the cash infusion offered by venture capital, it’s essential to understand what different investors can do for your business.
Consider Recent Investments and Partnerships
Experience is key to ensuring a long and beneficial relationship with an investor, so when you meet, you’ll want to fully understand a potential partner’s past investments. This might begin with a listing of companies they’ve invested in and how those experiences worked out.
Have they invested wisely in successful companies? When have they failed, and how did it impact their investment strategies moving forward? You want to make sure that they have a good track record with companies like yours and ask about potential conflicts of interest where their other investments or partnerships are concerned.
Finally, you need to obtain references so that you can contact them and find out what to expect in terms of interactions and alignment with a particular investor or firm.
Compare Goals and Values
If you’re an established business seeking investment dollars, it’s probably because you have a plan to upgrade, expand, or otherwise boost your current operations.
With a business plan in place, you have the best opportunity to approach potential investors and get a read on whether their goals align with yours. If you’re seeking a long-term partnership and an investor wants to get in and out quickly, it might not be a good match.
It’s also important to find a value-aligned investor that believes in your business and your vision. For example, if you have fundamental differences with an investment company’s culture, how they operate, or their acceptable levels of risk, it can lead to conflict down the line.
You will want to take a proactive approach and make sure you agree on salient points before tying yourself to an investor.
Pinpoint Conflicts of Interest
You might naturally assume that any potential investor, firm, or partner would avoid doing business with you if they had a conflict of interest, but you need to err on the side of due diligence, since it will impact your business.
They may not be keen to divulge all their investments, but you either need to get the full picture in advance or create language in the contract that guarantees there are no conflicts of interest.
Meet With Several Prospective Investors
If you were seeking a business loan, you’d comparison shop to find the best terms and conditions. This makes for a sound strategy when it comes to locating suitable investors or partners for your business as well.
Finding the right type of investor and using research platforms and social media to learn about their experience and values can help you narrow the field of candidates. From there, you can meet with a variety of prospects to get a feel for what your working relationship might be like.
Learn About the People Behind the Companies
An entity may be investing in you, but you’ll still be working in partnership with people, and you need to feel comfortable and confident in those relationships. This means not only researching the company, but also the people you’ll be dealing with. It’s especially important when you partner with an angel investor who will act in a mentorship role.
When you take time to understand different types of investors, along with their experience, values, and potential conflicts, you have the best chance to find the companies and investors capable of moving your business forward to a profitable future.
