It’s not all about money.
Taking money from investors is a lot like getting married. You take their cash and are bound by contract for what might as well be forever. If you accept this analogy, you can think of the question another way: “When is the best time to get married—before or after I’ve dated potential partners?” We all know what the answer is: after you’ve gone through the dating process.
It’s no different with investors. Say you need capital in a year or two. You want to start “dating” investors now, long before you need the money. It’s not the cash that’s key—it’s getting it from the right people. The best partners will help you build your company.
Invite the wrong investors to the table, and it’ll be a disaster, especially if they take a board seat. You’re going to be spending a lot of time with them, so you want your values, style, and ambition to align with theirs. You have to trust and rely on them, and in the best of situations they’ll be your allies and mentors—not just your financial support.
Here are five ways to pressure-test potential investors—before you slip on that ring:
Investors will tell you what you want to hear, especially if your company is a hot commodity. They might love your sector and adore your product, but do they really know your business from the inside-out? When we were starting our food business, we met with one of the most respected technology investors on Sand Hill Road. They professed huge interest, but after we spent some time with them, we realized that they didn’t really understand consumer-packaged goods, so we didn’t take their money.
Say you’re a nascent outdoor clothing company. If you value the health of consumers, your workers, the integrity of the supply chain, and just plain doing good in the world over the bottom line, then your investors should, too. If your most critical values don’t line up with theirs, then you’ll have a hard time understanding each others’ goals in the relationship.
Meet the family
What are the relatives like? Go out and meet with other entrepreneurs who are already in the portfolio fold. They’ll give you the truth about what it’s like to work with these investors. If they won’t, or you can’t quite find common ground, it’s probably not the investor for you. Ask to meet other partners beyond the one who is leading the investment deal. That’s another good indicator of the culture of the firm and whether it jives with your business.
At the moment you’re reaching exhaustion, would you tag your investors into your fight? Do they have the intellect, the muscle, and the moxie to help move your business forward during crux moments? Because when it’s all on the line, what you want and need are people beside you in the ring who you trust to fight the good fight.
The bar test
Running a business is exhausting and exhilarating, which is why it’s so important to enjoy the people you’re working with. Could you shut down a bar with your investors? Are they the sort of people you want to know, and can get to know? Building a company is not all fun, but it’s certainly more fun with people you like.
The best investors invest in you as a person long before they put cash into your company. You need to invest in them as people, too. So put in the time, make the connections, and get out there—now.