Receiving external funds (investor money) is always attractive to most founders. And rightly so! But as a founder, do you do your groundwork before approaching an investor?
From our (FounderMates) interaction with various startup founders, one of the most frequent requests that we receive is regarding help with raising investment. And believe me, rarely have I listened to a founder talk about his preference for the type of investor he would want to get in touch with. All we hear is, “please help us raise money”.
A lot of founders tend to focus only on funds but rarely focus on the source of funds (the type of investor).
Why is it important to focus on the source of funds? Because, it’s your business at the end of the day and your business objectives should be fulfilled.
In order to understand as to what sort of investor you need, the first step is to take a good think regarding your motivation about the investment.
Most founders, especially the young early stage folks should at least think about the following points to have an initial idea as to what sort of investor they should be looking for.
- Objective: Why is it that I am looking for investment? What’s my purpose? Local marketing, international expansion, technology development?
- Needs: What is it that I need from an investor? Funds, contacts, expertise or all of these?
- Involvement: How much do I want the investor to be involved in my business?
Your objectives, needs and required levels of involvement become your determinant factors to find an investor with some degree of awareness rather than shooting in the dark.
So, how would the above parameters be your determinants? Let’s take an example:
Example 1: Suppose I am looking for an investment of Rs. 25 Lakhs. My motivation is to invest in technology and I don’t need the investor to participate in my operational work. Also, I am inclined to have the investor in a passive role.
Example 2: I am looking for an investment of around Rs. 25 Lakhs to market my service. I don’t possess the necessary marketing skills so I am looking for someone who could actively involve himself in my startup and add value.
Now, here are 2 very different scenarios and motivations. As you would see, the founders are looking for 2 very different types of investors depending on their objectives.
If a founder doesn’t think about the preliminary criteria, he will eventually be wasting not only his own time in futile search but also the time of the investors that he contacts because he will be contacting a lot of irrelevant ones.
And remember, all of that time could have actually gone into doing a bit more in your business!
So, if you are thinking investment, ensure that you make your time to think through the preliminary things. And yes, this exercise will also help you to say No to money that doesn’t really meet your overall business objectives.
ABOUT THE AUTHOR
NIDHI KAPOOR - Nidhi is the co-founder of FounderMates.com & RankHigher.in. She holds an MBA in Innovation & Entrepreneurship from Imperial College, London. Prior to founding her companies, she worked with various startups in London.
Nidhi works with startups and businesses in Product Development, Social Media Strategy & Content Writing. She can be contacted at firstname.lastname@example.org.
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