StartUp advice: The importance of choosing your investors wisely
If you’re a startup with big ambition, it pays to do your homework on your prospective investors – just as they’ll do their homework on you, writes Jon Richards, CEO of compareit4me.com
Whether you’re looking to create a local or global business, every start-up founder dreams of landing a meaningful amount of investment.
But apart from the cash injection, and all the benefits that can come from landing the right investors, as a founder working day and night to build your dream business, the stamp of approval that you get from landing a big-name investor, if nothing else, feels awesome.
While it may be tempting to simply accept funds from anyone who’s willing to give them to you, having gone through the process myself, my advice would be to do your homework on the people and organisations you’re taking money from – particularly when you’re looking at larger sums at the Series A and Series B stage.
Let’s say you’ve built up a fairly successful business based on good revenues and a little start-up help from an angel investor. Presumably, by that point, you and your angel investor have a pretty good rapport, and work well together. But now it’s time to set your sights higher. For that, you may need to start looking at institutional money that can support recurrent and future rounds of funding.
It’s fair to say that bringing institutional investors on board will often mean changes in the way that you work, the way that you report, and can even mean changes in your plans for the business. All these things are part of going from a small start-up to a bigger SME.
And whilst we’ve been very lucky with the investors we’ve had on board, I have heard horror stories from some founders who really haven’t enjoyed working with their investors.
As a result, it’s worth doing your homework to find out who they’ve invested in and whether they’ve invested in your space. And, if you happen to know any of the founders of those companies that have taken funding, it’s worth speaking to them to find out what it’s like working with the investor.
In our case, one of our investors is Wamda Capital. Whilst Wamda were deciding whether we were a good fit for them, we were actually doing the same thing – we wanted to know the kinds of people that they were, we wanted to know how big the fund was, whether they had capital for follow-on funding, and what it would be like to work with them.
For those who’ve been living under a rock, I can tell you that having Wamda as an investor was one of the best things that we did. Not only have they supported us in three stages of funding, they’ve connected us globally to some of the largest investors. And we regularly mix with the founders of their portfolio companies, which gives us amazing insight into the ecosystem, and of course, access to potential partnerships where they make sense.
You also gain some of the most credible champions in the whole of the region. When you have anyone from Wamda or STC Ventures, another one of our investors, waving the flag for your company, it genuinely means something to the investment community both locally and internationally.
When you speak to investors in London, the first thing they ask is who your investors are. More often than not, they know exactly who Wamda and STC are. That gives us credibility, and gives them comfort, knowing there’s a local, credible support network behind us.
What’s more, something I hadn’t fully appreciated during our Series A, when we took investment from STC, Dubai Silicon Oasis and Wamda, was quite how hard it would make it for our competition to raise local money. We’re currently in the process of raising Series B funding, and I now see quite how thin the investment community in the region is. There’s a small number of people that can do Series A and Series B, and we grabbed three of them.
Don’t take this to mean that you should just grab anyone and everyone who offers you money, though. In our Series A round, we were offered investment from five different firms, but we opted to only take three, as they were the three that we felt were the best fit for us.
Don’t forget, after all, you need to get budgets approved by these people. If you’re not aligned on the mission, these kinds of everyday basics like budgeting and planning could be particularly painful. Your investors are going to have opinions on your business, and you want to be able to trust them.
You’re not always in a position to pick and choose, but remember that your investors will be around for a long time. You need to be able to get along, and it needs to be a mutually beneficial relationship.
Jon Richards is CEO of compareit4me.com, a leading financial comparison site.