Investors aren’t the only people who should have questions. Small business owners must also have queries. Not every investor is a good fit, for one reason or another.
Sometimes it’s better to look elsewhere for your capital, no matter how it makes your stomach churn. Here are a few questions you must ask potential investors before accepting their money:
1. Are They a Follower or a Leader?
How an investor interacts with the rest of your company has a huge impact on their value. Whether they’re a leader or a follower will determine whom you should speak to when discussions come up concerning investment or the company’s direction. Knowing who prefers to go with the flow and who wants a direct hand in the business’s development can help keep feelings from being hurt and make sure those who want a say get their day.
2. How Do They Make Decisions?
Everyone’s got their own way of doing things. Some investors like to take their time and examine everything from every conceivable angle, while others like to go with their gut. Whatever the case, it matters to you. How they make decisions impacts the time it takes for them to weigh in, which can affect your company’s efficiency.
Keep in mind that you may not be dealing with an individual entity. Some funds we handled by multiple people who have scheduled meetings to decide on their vote. This can drastically affect the amount of time between planning something and getting it done. If you feel their schedule is too inconsistent or slow for your company’s needs, it’s best to look elsewhere for your company.
3 What Do They Need to Know?
Depending on what stage your small business is in, investors will want to know different things. For the most part, they’ll need to know what your future plans are, how the company is doing, and what could go wrong. Others will want to know more about your core team, while others may be more motivated by the potential your company wields.
Prepare documents detailing important information about your company so there’s no downtime and so they can peruse it at their comfort. You should also prepare nondisclosure agreements if they should require more sensitive information.
4. Have They Invested in Your Industry Before?
Investors have a say in how your company is run, so it’s in your best interest to find people who have a working knowledge about you industry. The more they know, the better. Finding out their investment history can also tell you if they’re definitely looking for a company to give money to, or if they’re researching for future reference.
5. How Much Can They Invest?
Investors don’t have all the money in the world, and they’re constantly putting money in and out of their accounts. Depending on when you catch them, you may find that they’re not ready or able to commit capital to your small business. This can drastically impact your fundraising effort if you happen across interested parties who just don’t have the cash you need.
Don’t worry about being awkward when you ask them how much they have available. It’s a perfectly valid concern, considering your small business’s needs. It can also save both of you a lot of time if they don’t have enough reach, although it doesn’t hurt to give them a rundown of what your company has to offer, just in case their funds suddenly free up.
Asking investors these questions will ensure that you only get people who are a great fit for your small business. Don’t be afraid to ask other questions You’re getting into business with these people – you should know who they are.