Startup Guide: 5 things to know before choosing the right investor

An investor can be an individual, an entity, big organization or a big mutual fund house. These people allocate their resources i.e. money in expectation of getting higher returns. Their name changes at various stages of investment. For example, at the very initial stage of investment, they are angel investors or seed investors. There are different kinds of investors who invest in different financial fields. Some areas could be equity, derivatives, debentures, gold, currency, commodity, real estate, new startups, etc.

Every investor who decides to invest in new startups or giant companies in order of getting maximum return should have qualities like humbleness, agility, trust, passion, nimbleness, etc. The combination of these features makes them more genuine.

What are Investments?

Investments are long term assets which give huge returns in the future. Presently, investments are also done for a short-term. But, in a broader sense, an investor invests for the long term, and higher returns. Investments provide financial security towards the financial obligations in the future.

Great investors are those who can get compounding returns from their investments. Choosing the right investor is not an easy task; but still, it is not very tough to take them on board. For an early startup, choosing the right investor is treated as a foundation.

Here are 5 things to know before choosing the right investor

Choose an investor who can meet your needs

You always need to find an investor who can fulfil the financial needs. They should be able to provide you with the resources which you propose in the first meeting. Sure, there will be some negotiation. So, you need to decide whether the proposal after negotiation fulfils all your financial needs.

Different situations and stages put forward different needs. So, as a founder, decide whether the investor(s) are adding value and fulfilling your needs at different stages or not? These questions help you to select the best investors.

Pitch to the most experienced of the list

The famous phrase “ Experience speaks", is true in this case. If you get the most experienced person on board, you will have a mentor too; they know better than you. But before getting them on board you need to track their records of success in the past. Before choosing the right investor, you should ensure that they have the experience of running, building and helping startups or companies.

Getting investors on board does not end at "getting money" to start a business. Their experience also matters because they can give proper advice to the organizations through their past experiences. Your investors must have in-depth knowledge of the domain where you are trying to start.

Choose those whose interest is aligned with yours

A great investor will always give priority to decisions that are in the interest of your organization. They will also always respect your decisions. If there is any flaw in your decisions, good investors will automatically correct them. They will act as a supporting element to your organization.

Thus, choose them, who understand your long-term visions for the organizations. You should have the ability to have a healthy debate with your investors; it gives a clear view of the thought-process of the investors wrt your organization. You need to self-analyze the investor's mind. Whether he is only in the startup for holding shares and future returns; or does he actually care for the organization's growth.

Look for trustworthy investors

It is the most important characteristic of any investor. You must be able to trust them as they play a very vital role in the foundation of your business. When you are going through a rough patch, the investor should be able to back you. You should know that he won’t leave you in a shoddy situation. Most startup founders try to on-board relatives as loan-providers in the early days. But, finding a more trustworthy investor, rather than your relationship with him/her, will best suit you to get them on board.

An investor needs to be a Risk-Taker

High Risks yield High Returns. Yet, nowadays investors are more calculative. At the same, they are calm and patient. To enjoy the higher returns and benefits sometimes everyone needs to take “Risk”. But it must be more calculative. Why? Because if any uncertain loss happens or any situation arises then an investor must be capable to cope with all these situations. A great investor would always challenge their “status-quo” to meet the future needs and goals of an organization.

(Note: The article is written by Ms Priyanka Madnani, Co-founder, Easy to pitch)

(Edited by Laxitha Mundhra)