18 Nov Why finding the right investors is important for you?

Does the investment mean the startup is worth taking a risk?

When it comes to start ups the basic prerequisite that forms the foundation of the business is the inflow of cash. And a good investor is the solution to such a problem. A good investor does not only provide the company with a financial backing and economic support but it also instills in the startup a confidence that the business is worth the investment and in turn makes the entrepreneur perform better. The finance that comes from the investor acts like the perfect missing piece to a puzzle, which makes it complete and reach new heights.

Investors are available in my fraternity. Do I raise funds from them now?

The investors play a crucial role in the success of a business and therefore they must be chosen with utmost care. Among the most common blunders in choosing the right investor is the eagerness to decide on an investor. The temptation to choose anyone who is readily investing in the business high, but the decision must not be taken instantly. Such eagerness leads the entrepreneur to overlook the dangers that the new business is being put into by choosing the wrong investor, therefore before deciding on a single investor a detailed search must be done which makes the entrepreneur sure of what is right for the business, but at the same time waiting too long for the right investor might affect the business growth and also keep the entrepreneur distracted.

Deciding upon the right investor is crucial to the business, as the strings that come with the finance might not be suitable for the growth of the business, this decision must be made once a complete check on the investor has been done. For this purpose talking to the other entrepreneurs that the investor is funding seems like a good idea and on the basis of the feedback from such entrepreneurs, the investors can be easily rated.

Should I still go ahead to meet investors and build relationship – if I am not clear on how much to raise?

The amount that the candidate wishes to raise through the investor should be also quantified before they meet up with the investor and set tier terms. It may be a difficult job to put a price on the business that has been started with such passion, but it surely does help in making the right demands. It is not guaranteed that the amount demanded will be delivered but an estimate of the same helps the candidate make a better appropriation of the proposal being offered.

Deciding on the right estimate of the amount to be raised through the investor also helps in categorizing the investors to be approached and hence short lists the investors to be contacted. The tangible amount also helps in making the demands clear, which also serves as a good base to start the negotiation.

Valuation, valuation, valuation – What’s wrong with that?

If there is a continuous disagreement over the amount being offered by the investor and the amount being demanded, then it clearly hints towards an overvaluation of the business on the part of the entrepreneur. In such a case, the business should be revalued by the candidate and process of contacting the investors must be completed henceforth. This experience helps the entrepreneur in getting a better judgment of the valuation of the business also.

I am Jack of all trades. Am I?

The time factor should always be kept in mind while looking out for an investor. The entrepreneur has to skill himself in finding the right investor without wasting much time and energy in the process as it is not the core competency of the business. The entrepreneur should understand that the right deal might require him to compromise on certain points.

As a company evolves, the requirements of finance also evolve. The different stage investors like the seed investors, VC firms and the PE firms have different perspectives and therefore the entrepreneur and the business should be prepared to adapt as and when the business grows.

This process of finding the right investor might seem tedious to the entrepreneur, but it is sure to sharpen the skills of the entrepreneur as a future CEO.

Ok! Let’s get married now

The last but not the least, an essential requirement of a successful business is the compatibility between the entrepreneur and the investor. If the equation clicks, the business can reach unexpected heights but on the other hand if the chemistry between the two in not right it is going to affect the business in the long run (no matter the terms of the agreement). The emotional connect between the two is sure to surprise the business with a fresh flow of energy and enthusiasm. A good understanding with the investor helps the entrepreneur to have faith in the business in its tough times.

About the Author: Varun is the Co-founder of InnerWave (www.innerwave.in), a corporate advisory firm. He has experience in raising funds for Venture Capital, Private Equity, Startups and SMEs. 

He has also worked on multiple M&A deals. 

He has delivered work to wide range of industries including Healthcare, Consumer Retail, Services, Private Equity, Investment Banks, Manufacturing, Defense and Agriculture.

For fundraising discussions, please write to info@innerwave.in

For M&A and Restructuring discussions, please write to VD@innerwave.in