When seeking investment for your company, always ask what the investor can bring to the table besides a check. This is important in the process of building long-term business relationships.
Having an investor that has traveled the road before you can accelerate your company even faster. When you hit a bump in the road, they will have the experience, knowledge and network to get you over it and in forward motion.
The questions that you must assess and – if you can’t answer it on your own – include:
- How can you balance the money in your business?
- What is a potential investor’s expectation for the percentage of equity they will take?
- And, equally as important, what is the realistic time they are willing to put in? And, what type and how big of a network do they have to help you leverage your growth?
Having an investor that does not have experience in your type of work can be frustrating for both parties. If you hit a wall they may not recognize just how big of a wall it is and can cause frustration on both sides and the relationship may fall apart. It is good to remember that an investor doesn’t always make a top mentor on all issues you face as a business owner.
When it comes to raising a new round of capital, the ability for an investor who already has a stake in the company can help a lot. When raising the next round, founders should always approach their current investors and ask if they would be willing to do a follow-on investment. If they agree, this can give other investors confidence to also join in. If the investor has experience in the sector this can further increase the confidence of new potential investors coming on board.
Having investors that will follow-on will also reduce the amount of paperwork when it comes to legal documents. This is good to consider as you potentially will have less investors to keep happy and less investors involved in your business.
It will take three to four months from convincing someone to invest in your company before the money is sitting in your bank account and that’s when everything runs smoothly. If there are disagreements, it can further delay the process. Plan for this by leaving plenty of time and have a buffer of at least one month of cash in the bank. Have a closing date for the investment as this helps put investors under pressure to commit – ask them are they in or out!
Some investors like to wait until you run out of money to invest as this gives them a better position when it comes to bargaining for a better deal. Always have a backup plan. Try to have more investors then you need – this puts you in the driver’s seat.
Remember, not all of the deals will go through. A high percentage of deals will collapse and this usually happens near the closing date. To help avoid this, build a relationship with the investment community as investors will want to get to know you before they decide to invest.
At Nebraska Innovation Campus we plan to bring the investors to you only when you are ready, several of these investors will also be mentors who will help guide and advise the founders as they develop their business plan.
Again thank you to Alex Russell for the water painting image.