How can you choose the right partner to invest with?
Inviting an investor to help grow your business is a more complex matter than finding a backer with deep enough pockets. For long-term, sustained success it’s important to find a partner that fits your individual organisation.
The perfect match not only varies from business to business, but different investors will suit your organisation at different times as it evolves and grows. It’s always worth starting each round of funding by reassessing who and what you’re looking for.
It’s important to find an investor with a good mix of experience.
First, you should opt for an investor with experience in your industry. They’ll understand the way you do what you do, as well as offering useful connections and bringing fresh but relevant ideas to the table.
It’s also useful to have a backer experienced with businesses of your size, and with businesses at your stage of growth. Your investor should bring more than money to the table, but also have the skills to put it to effective use.
There’s more to having money than what is currently available. An investor may have the cash sum you require right now, but it’s crucial to look deeper.
The ideal investor will have adequate reserves to invest beyond your current stage of growth, especially if you have big ambitions. Imagine finding the coffers empty as soon as you hit your first set of goals.
In addition, investors often have ‘life cycles’ on their pot of money. Sometimes the finance requires returning to its originating fund (with interest) after a certain period of time. Money with the freedom of time allows for measured growth, whereas cash that’s likely to be called in by your backer’s backers could lead to hasty decisions and even a rushed exit.
Personality and values
You’re about to go on a difficult and, at times, emotional journey with your investing partner. You’ll need to like and trust each other. While it’s not necessary to be best mates, you’ll at least need to share values, to ensure you agree more often than not on how to achieve mutual goals, and know that they will support you through the inevitable tough times.
Some investors like to get hands-on and have a say in decisions, others support from a distance. Some see the generation of cash as the ultimate goal, and others want to build a legacy. Knowing what personality type would best fit in your management team will help you make a smarter appointment.
The supporting team
You may only deal with one individual, but they often are often backed by teams of experts. It’s just as important to understand their credentials and relevant experience, and to ensure they have the right blend of skills to help a business like yours grow, manage its finances and have useful input into its operational decisions.
Just as if you were recruiting an employee or signing a major deal with a supplier, it’s useful to ask for references. This will give a reasonable idea of what you can expect from your working relationship.
Don’t be afraid to ask for extra references beyond the handful they offer, which will naturally be glowing reviews. If your investor has previous projects listed on their CV or website then pick a few at random and request to speak to them. Better still, ask if you can speak with a business where the project didn’t work out. An investor with integrity should allow you to examine their record, warts and all.
As you can see, many more factors go into selecting the best investing partner than simply their willingness to write the right cheque. But don’t worry, if any of this seems daunting then there is no reason to make this decision alone. Speak to an advisor at Begbies Traynor and whatever stage of growth you’re at, we can guide you through the process of finding an advisor. And we’ll help market your business so you’re choosing from the cream of the crop.
Martin has nearly 20 years’ corporate finance experience specialising in advising owner managed businesses. Martin has considerable experience advising on business sales as well as management buy-outs and acquisitions across a wide range of sectors and deal sizes.