Three men sit around a glass-topped conference table in a white-walled office room. The two men on the right are wearing suits; they sit across from each other and shake hands. The man on the left is wearing a dark blue button-up shirt; he watches them with a smile.
A potential investor is more than a source of money. When considering investors, you should look for business experience and shared values, in addition to financial availability. — Getty Images/fizkes

Securing funding for your startup or new business is an exciting yet challenging task. It can be tempting to accept money from anyone willing to invest. However, an investor does more than provide funds. Their role in your company can change the dynamics, and selecting an investor that shares your vision and values is crucial.

Do your due diligence before choosing an investor. Research the firm and individuals involved, verify references, and develop a list of questions to ask during your next meeting. Use the following suggestions to pick an investor that brings strategic value to the table.

Think about an investor's industry and functional experience

Venture capitalists and angel investors bring knowledge (in addition to cash) to your business. Investors rely on industry experience when providing targeted advice, and their backgrounds may influence their decision making. Their knowledge should be relevant to your industry and stage of development. For companies with a physical location, your investor should be familiar with the local market and customer base.

Also, consider an investor with functional experience. This could be someone who has founded a startup or had a significant role in running a business. An investor with a business background may appreciate the finer points of entrepreneurship or feel emotionally invested in seeing your small business succeed.

Don't forget to look for an investor with a solid track record of successful business-building and exits. Look at their current and previous investments, and if possible, speak with people who have collaborated with the investor previously.

[Read more: Business Investors: A Guide to Knowing When and How to Find One]

Consider an investor's vision, values, and mindset

Your image and reputation hinge on how well you convey your brand across multiple platforms and mediums. Each aspect factors into your trustworthiness and ability to generate customer loyalty. Regardless of your investor's participation level, accepting an investment ties your entities together in the eyes of the public and customers. A venture capitalist with a poor reputation can come back to haunt you, as brand-damaging moments exist on the internet forever.

Think about how your investor would react in various scenarios, such as a setback delaying growth or an edgy take on a new product line.

In addition, differences in values or mindset can affect your company's culture and operations. If you promise employees that you'll support their work-life balance but choose an investor expecting staff to work weekends and holidays, problems could arise. Likewise, 69% of investors told NerdWallet that "it's important to them to invest in a socially responsible way." Yet fewer than one in four of investors surveyed place most or all of their money into investments that align with their values.

Go through the finer points of your brand's mission and values. Look for investors that not only share these ideals but are willing to stand behind them.

Decide if your tolerance for risk aligns with an investor's

Investors like new and innovative ideas, but risk tolerance differs among individuals. Some investors are willing to back your unique product or marketing concept because they know it has the potential to be wildly successful. Others prefer that companies take a more conservative approach. The return on investment (ROI) may be lower, but there are fewer risks.

Think about how your investor would react in various scenarios, such as a setback delaying growth or an edgy take on a new product line. Will they push your company to take riskier moves than you're comfortable with? Or refuse to back ideas because they want a safe bet?

[Read more: 6 Financial Terms to Know Before Pitching Investors]

Gauge an investor's strategic value

Investors should bring value to your business. They may be well-connected in your community and be able to open doors to new opportunities. Or your angel or private equity investor could take more of an advisory role, bringing their deep understanding of finances, analytics, or marketing to the table. Consider investors with skill sets that fill knowledge gaps in your organization and who want to invest skills and time.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

To stay on top of all the news impacting your small business, go here for all of our latest small business news and updates.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

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Published October 07, 2022