Four questions to ask before choosing an investor

2016 became the year of the start-up, with a record 80 new companies being born an hour. With this growing number of new companies looking for investors, the market is becoming increasingly saturated with demands for an investor that can do it all and tick all the boxes. 

Finding the right investor for your company is up there with the task of finding the ideal flatmate or your life partner - they will be there for the good, the bad and even the ugly. Anyone can give you money, but only a handful can give you the advice and informed guidance you need to succeed.

There are various qualities entrepreneurs and start-ups should look for when picking an investor, but there are four key questions you should ask yourself before signing on the dotted line.

Do they share your passion for the industry?

This is a vital question to consider when vetting potential investors. Your investors will be key in providing not just money but access to their own network and contact base. Building on a funding round with connections to further establish your product in the industry is important for long term success. Getting the money is the start of the process, but finding an investor that shares your interests will ensure that they want your business to become a great, long-lasting and sustainable company. It's what you do with the money and the people that makes a good investment. 

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What do you need this investor to do?

There are various types of investors who can come in and offer support at different stages of a business journey, so you need to ensure that you are looking for an investor who can solve your current problem. At the early stage, getting in the funding will play a bigger part. In early rounds, the risks are higher so you have less chance to be picky. Few investors are interested in businesses that carry such great risk, so ensuring you get the funds in is key to progressing and ensuring the business survives.

As the business grows, there will be more appetite to fund your company so you can pick your investors more carefully. Mid-stage companies will need the industry knowledge and the larger you get and closer to listing your IPO, you will need financial people with clout and contacts to ensure you IPO is successful. Having diversity across your investors will help you achieve this balance, as you want to have investors who have complimentary skill sets and can also fill gaps in your current team. If you’re a start-up of two graduates, an investor whose name carries some weight will be much more beneficial in the early stages than one who has also only just graduated.

Read: What will the next generation of crowdfunding platforms look like?

Will they tell it to you straight?

You ultimately want someone who really understands the market you are working in and will call you out if they think your strategy is misguided. There's no room for hurt feelings in business. An investor is putting their hard-earned money into your company so expect them to be vocal about how well you're looking after it. If you're not doing a good job, you're accountable to them. Saying that, just shouting at you isn't going to help anyone. You need to make sure your investor is someone who will constructively help you. Running a start-up is a roller coaster ride and you need steady heads, not people easily spooked or emotional. 

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On the flip side, it is also important that you can be equally as direct with them. If they are an investor that is involved in the day to day running of the business, you need be able to get straight to the point in a conversation and not worry about phrasing.

Is this a sustainable relationship?

Your investor is likely to stick with your company either through to a successful exit or its demise, so you should be picking investors who believe in you personally and that you can trust. Every business has its bad days and a good investor will guide you through these. You need to trust that they will have your back when you need it the most.

This is a guest blog and may not represent the views of Virgin.com. Please see virgin.com/terms for more details. Image from gettyimages.

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