Guidance on picking best investors
Entrepreneurs need to determine which VCs or investors to seek to raise money from. Don’t waste your time with investors that aren’t likely to be interested in your business—either because of the company’s industry, stage or otherwise. Some of the more important considerations when choosing investors include:
- Industry Focus. Each investor has a different area of focus—some focus on life sciences companies, while others focus on software companies, for example. Even within broad categories, some investors have a more narrow industry focus, such as digital media, mobile, semiconductors or clean tech. Choose investors that understand your business and industry. They will be in a better position to help you build a successful company by leveraging their experiences and industry contacts on your behalf.
- Company Stage. The company’s stage of development is an important factor when assessing which investors are most appropriate. Some investors will only invest in the seed or initial of funding. Others will invest later, but only if they also invested in the first round, and others won’t invest until the company is more mature. Understand the stage preference of the investors you target so you don’t waste your (or their) time.
- Geography. The location of the investor in relation to the company may also be relevant. Many , for example, prefer to invest in companies within a reasonably close proximity so that they can more easily monitor their investments and provide hands-on assistance to the company. Geographic proximity is generally less important to venture capitalists, but even they tend to make more investments closer to home or in certain geographies—especially when it comes to investing in early of funding.
- Competitive Investments. A further consideration is whether the investor has already invested in a company doing something very similar to what your company is looking to do. It is definitely a plus to have investors that have direct experience with companies similar to yours. Their insights into your industry, customer base and business model will be very valuable. However, if the investor already has a portfolio company that is a competitor or otherwise too similar to yours, then conflicts (or worse) can arise. In that case, most investors will want to avoid those conflicts themselves and won’t invest in your company. Even if they would, why chance it?
- Reputation of Investor. Investors will a lot of questions about your company, your technology, your team and your strategy. They should—they are making a big bet on your company. But aren’t you betting your company’s success on them as well? around. Talk with other entrepreneurs that have raised money from your potential investors. If you are expecting them to continue to invest in the company as it grows, do they have the means to do so? How do they behave when things don’t go well? Every company has its ups and downs, and yours will too. Investors can’t and shouldn’t blindly continue to support companies that are failing, but you should try to pick investors that have a reputation for being supportive even during challenging times.
The point is before you start contacting investors, you need to do your in determining which ones will be the best for you and which ones are most likely to make an investment in your business. A good place to start is with the investor’s website (if it has one), where you’ll be able to review the investor’s investment approach, a list of portfolio companies and the backgrounds and investments made by each investor and their team. If there isn’t a website, then you can search the Internet under the investor’s name for press releases regarding investments made by that investor. Ask people in your network. If you work with an attorney that specializes in working with and venture-backed companies, the attorney will likely have strong connections with most investors and can help you build a list of the most promising potential investors. Your accountants, bankers and other advisors may also have good insights for you as well. Once you’ve done your research and made a list of investors to approach, you’re ready to plan how you get meetings with them. Learn how to get meetings with VCs.