Choosing the Right Investor

Milan Gautam, July 14, 2017

Often, entrepreneurs in need of capital are hesitant to turn down or become too picky about offers from investors on the grounds that after all, they are being offered exactly what they want money. However, choosing an investor is a task easier said than done, and choosing the right investor is as important if not more as any big business decision.

At a time when financing is key, it's surprisingly easy for a business venture to lose focus and plump into investor prospects. But more often than not, when you're starting out with a small team, an investor means a whole lot than just a piggy bank. It's almost as if you're looking for a co-founder; you don't just choose a co-founder on a whim or based on a rule of thumb, do you?

Firstly, it is necessary that you (the founder) and the investor click on a personal level. Getting to know who is investing in your company is key, and essentially more important when dealing with lead investors or majority stakeholders. Like close relationships, the personalities need to mesh well and there needs to be a deep level of understanding of where you want the business to head; otherwise, it will be a difficult and toxic relationship every day for several years.

Secondly, and probably most importantly, it is a cardinal rule in investing that good investors never invest in something they don't understand. And as a venture looking for investors, implementing this rule strictly would ideally help weed out prospects, and find the right fit for your company. The investor should be in sync with what you are trying to build. Always opt for an investor who understands and respects your startup's values and belief system. Both you and your investor should have the business' interests at heart.

Thirdly, it is extremely vital to assess what kinds of value are being added to the company with this collaboration. It is more about finding the right fit for a company's strategic orientation as well as vision than just finding someone who signs the cheque. More importantly, in context with the Nepalese market, investors are not just involved in a single venture, as they quite possibly have multiple things going on simultaneously. Thus, it is worth noting that getting the investor's time is as important as their money. Being able to give time to the leadership and help them weed out their mental, emotional and financial roadblocks are hallmarks of a conscientious investor.

Moreover, it would be a wise bet to look out for an investor who believes in your team's capabilities and expertise more than the business idea that is being pitched. For any startup, failure is an inevitable possibility; ideas have this profound trait of being vulnerable to failure, and that can create a significant dent in your startup's morale. Thus, it is very vital that the investor be able to see through those failures and power the team to believe in themselves and move on beyond to other ideas/products.

Finally, on a personal note, it is actually a relief to find an investor who knows beyond just the tip of the iceberg in the entrepreneurial highway. Sure, success is what is clearly visible to the masses, but it is a great deal of emotional support if your investor is well acquainted with the grass root struggles and unprecedented failures that accompany a business venture in a market as volatile as that of Nepal.

However, in the end, choosing the right investor depends on the stage your startup is in. Depending on the nature, size and stage of business, it would be wise to choose your investor after a thorough analysis of the prospects, your organization’s needs and your preferences. It is very important that you know what you want from an investor (and obviously that is not just money). In conclusion, there is no such rule of thumb that would ideally apply for all startups; a careful consideration and assessment is very vital.

Milan Gautam is the CEO of Spark Technology and a participant in the first batch of our Enterprise business accelerator program.

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