What A Startup Should Look For In An Investor

A startup or entrepreneur looking to raise capital is willing to do almost anything to accept capital from an investor.  As a corporate and business law attorney, experience with more successful clients has led to some observations about what an entrepreneur might also want to look for or consider in an investor besides capital only.

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Consider the following observations when looking to attract investments.

 

Build Friends Not Just Investors

While investors can be demanding (and this should be looked as a positive), both the entrepreneur and investor should have a mutual respect for one another.  An entrepreneur’s interaction with their investors should not be combative or adversarial.  After all, it is in both parties interest that the venture succeeds, and the responsibility is on the entrepreneur clients to cultivate healthy interaction with investors.  Friendship-based relationships between investors and entrepreneurs is very helpful.

There are three particular benefits for the entrepreneur.  First, future investment often comes from existing investors.  If a company is struggling or not meeting its initial milestones, it becomes much easier to approach investors where there is friendly interaction and open ongoing communication.  Second, investors are much more willing to introduce entrepreneurs who they view as friends to others within their network.   Investors highly value their network and are willing to go a long way to make introductions to help their portfolio companies. Finally, company founders spend a lot of time with their investors and that time should be time spent constructively.

Look For Smart People

Just as investors say that they are looking for smart entrepreneurs, entrepreneurs should also look for smart investors.  Too often, entrepreneurs favor passive money without considering more.  Instead, smart entrepreneurs should seek investors who have been in the trenches and can help set reasonable expectations and pathways for success.  After all, start-ups are competing with new products, and investors who can “see” the new markets can offer invaluable assistance.  As Wayne Gretzky once noted, “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”  Entrepreneurs benefit when they find investors who can be their Wayne Gretzky.

Know Which Doors To Knock On

Structure Law Group, LLP has helped many companies raise money from VCs, angels and corporate investors.  One reason that fundraising is such a time-consuming process is that the entrepreneur does not properly modify their pitch depending on the investor.  It is important to know the audience and research the investor or business partners. An attorney can be a very helpful resource in this regard.  When an entrepreneur presents to an investor or company, it may be their first time with that particular entity.  However, many attorneys may have interacted with a particular investor many times over the years already.  As a result, attorneys can help identify key aspects that a particular investor values or tends to avoid.  In addition, attorneys can help structure a customized deal in a way that satisfies the needs of the entrepreneur and investor.  After all, negotiation that does not result in a term sheet or a diligence process that is workable for both sides, serves no purpose.

Investors come in all different sizes and abilities.  Even if entrepreneurs have to take whatever money they can get, it is helpful for entrepreneurs to keep the above in mind as they develop a working relationship with their investors and advisers towards the goal of a successful enterprise.

Contact A Silicon Valley Corporate Business Lawyer Today

Our Silicon Valley Business Attorneys are experienced in startup companies as well as established businesses looking to raise capital. Contact Structure Law Group, LLP today to learn more about how to find and build a productive and mutually beneficial relationship with investors.

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