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How to choose the right investor for your startup?

Merely getting hold of an investor who is ready to invest in your business, be it an angel or a VC firm, is simply not enough.
By Monica Mehta 

I have often seen young startup entrepreneurs running from pillar to post, looking to raise funds. Their intent is to get hold of an investor who is convinced of their startup’s future potential and agrees to invest in their startup. Almost always, startup founders want to make this entire journey, right from identifying a potential investor to finally getting their money channelized into the startup, a quick one with the least turnaround time.

But is that the right attitude? As a startup entrepreneur, one should look beyond convincing and channelizing an investor’s money into the business. If one wants to see one’s startup grow as a sustainable and scalable business, then an entrepreneur needs to be choosy about the investor that is brought on board as a partner in the business.

Merely getting hold of an investor who is ready to invest in your business, be it an angel or a VC firm, is simply not enough. You need to do your homework well. Conduct detailed research on the investor – the fund size, their recent investments, their relationship with their portfolio companies, the value they have added to their portfolio companies through their board seat, how profitable their exits have been, what their industry credibility is, are they known to support their portfolio companies through market cycles. You do not want to pursue an investor whose finances might be on the downhill or whose credibility in the market is questionable.

Even if the investor scores positively on every aspect that we discussed above, it is important for you to make sure that the investor is aligned with your company’s mission and vision. You wouldn’t want a situation where the investor wants you to compromise on your values or mission/vision for the sake of short-term business profitability. Getting into a monetary association with someone who doesn’t respect your mission/vision is only calling for trouble in the medium term.

It also makes sense to look into the investor’s track record and find out whether they have historically gone into funding repeat rounds of investment. While this might not be mandatory, to identify and associate with an investor who has a track record of repeat investments means you have high chances of not needing to scout for investors at every round in the future.

Another factor that should determine your choice for an investor is how much influence does the investor have in the market? Besides the money that they invest in you, investors who are great influencers usually tend to bring you a lot of credibility from different aspects of the market, including media, customers, and mentors. If you are a startup trying to draw attention to yourself, a reputed investor backing is instrumental in helping you make the desired noise.

Remember that when an investor chooses to invest money in your business, they often expect a certain amount of control in your operations. Therefore, before signing on the dotted line and accepting that all-important investment from the investor, find out what their current beneficiaries say about them, how demanding they are in forcing their way in day-to-day operations. While it is imperative that your potential investor should understand your business really well, it is equally important that they play the role of a “guide” more than that of a “boss”.

Source: CNBC TV18

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