Finding the Right Investment Fit

I don’t know about you, but over at ByteCubed Ventures HQ we are counting down the days until Jonathan Aberman presents on “Pitching Investors Without Getting Caught in the Sandtraps” for our inaugural Lunch with Leaders event. Before you’re ready to prepare the perfect investment-winning pitch, however, you need to make sure you select the right investors.

Choosing investors is an intensely personal business decision. Anyone can write a check; you want someone who truly understands – and is passionate about – your business and who has the experience to back it up. Your investor should also be a good fit on a personal level. You are considering entering into a legal agreement with them, so you should get along! Here are some things to keep in mind when selecting potential investors to pitch.

Which type of investment is best for your company?

There are several different types of investment models, and each has their own set of pros and cons. Your company’s maturity level will also determine the types of investment you can realistically chase.

Angel Investors

These are individual investors using their own funds to invest in businesses. Funding from angel investors is often smaller than from firms since they are using their own money, but an angel investor may be more hands on as well, bringing with them a network of business contacts and a wealth of advice and know-how. They are also more likely to invest in startups and newer businesses.

Venture Capitalist

Venture capital comes from a firm rather than an individual. They use other people’s money to make these investments and so are more risk averse. A VC firm generally wants to see proven track records of success before they will consider investing, and so this type of capital is better for later stages of fundraising. The potential investment amount is larger than what you can expect from angel investors, however. VC firms will also usually want a seat on your board.

Private Equity Firm

Private equity is not publicly traded, and thus comprises a group of direct investors. It is available to companies of a variety of maturity levels. Private equity also tends to be long-term investment – five years on average – and can bring a vast sum of money to your company. The biggest downside, however, is that you may lose control of your company, as these investors usually want a majority stake. This is particularly true in the instance of a leveraged buyout of a company in financial distress. In short, the payout is bigger than with VC or angel investors, but so is the loss of autonomy.

How involved do you want the investors to be?

Some investors like to be closely involved with your company once they’ve decided to invest, while others may prefer to keep a wider distance and let you run your business as you please. Deciding which model is best for your company will largely depend upon your specific set of circumstances. If you are a less experienced CEO, you may find a great deal of value in bringing a weathered professional on board to provide guidance as needed. Conversely, if you have a strong grasp of your company’s direction and goals, you may find it distracting to have investors calling you up frequently with ideas and input.

Do they have experience in your industry?

When your business is new and hungry for capital, you may feel as if you can’t turn down anyone willing to write you a check. This line of thought could be incredibly damaging to your business identity if you accept money from the wrong investor. Passion for your project is a must, but you also want someone who understands the ins and outs of your industry and will be ready to proffer helpful insights for growth. Don’t hesitate to ask them about their professional background and past investments to get a sense of their knowledge base.

What is their reputation?

There is more to selecting an investor than simply finding someone with deep enough pockets who knows your industry. You also need to ensure you will get along with this person and that they will be a trustworthy partner. Once you enter into an agreement with someone it can be incredibly difficult to sever ties, so trust your gut and do your homework. Ask for contact information for CEOs from other companies they’ve invested in and hear what they have to say about their experiences working with this person. If they all refuse to talk or have negative things to say, you should steer clear and keep looking.

Now that you’ve determined parameters for the ideal investor partnership and started singling out potential partners to meet with, it’s time to perfect your message. Join us for Jonathan Aberman’s presentation on crafting the right message to investors on August 29 from 11:30 am – 1:00 pm.

Brendan Gilfillan