03 Feb Entrepreneur’s Tip of the Week: Is Your Investor Right for You?

For decades the focus of those who invest in growing companies is whether the potential portfolio company is the right fit for the investor’s size, industry, stage of development and the like. As I noted in my recent book, more and more entrepreneurs these days are asking the converse. Assuming an investor is offering funds to finance my growth, is this the investor that is right for me, my personality, my ability to play well with others? Are our interest properly aligned? What are my risks if the investor becomes unhappy?

For the first time in a number of years, more and more companies are being offered more than one potential investor term sheet. Which one to take? Some investors place more restrictions on a company but are more likely to fund later rounds and claim to offer business advice beyond the investment. Others leave you to make decisions and run your business but are less likely to be there when you have a tough decision to make or need another round of capital. Some want representation on your board, others do not. Some are funds with professional investors with Ivy League MBAs, others are angel types who have built businesses but may not be as financially savvy.

If you are lucky enough to have choices, look inward as to what type of person you are. After all, you left the corporate world for the control and independence of having your own business, make sure you are comfortable with someone else having veto powers over major decisions. For some the tradeoff for greater guidance and business experience can be worth it. Also be careful of certain rights giving investors the first money out upon a sale, which might cause them to pressure you to accept a transaction for a lower price since they get the lion’s share at that point. Make sure to have good advisors helping you sort this out!