How to Choose the Right Investors
Choosing the right investors can make or break your company.
When you’re fundraising, it’s tempting to take the first signable offer you get. In a tough funding environment, just getting any deal can feel like a miracle.
But choosing the right investor is about much more than just the capital. Investors become long-term partners, and their involvement will shape the future of your company in ways you may not expect. Taking money from the wrong partner at the wrong firm can kill your company.
Here’s how to evaluate investors beyond the dollar amount and find the right fit for your company.
1. Determine Your Ideal Partners
It’s crucial to know what kind of investors you’re looking for before you start seriously negotiating. Not all investors are equal, and not all will add value beyond just cash.
Questions to consider:
Do you want an investor who has operational experience as an entrepreneur?
Would it help to have an investor who’s an expert in a specific industry or region?
Are you looking for someone with a deep network of other investors, potential customers, or prospective employees?
Would you prefer a partner who actively mentors the founding team, or someone more hands-off?
Also consider the firm’s brand and operating resources. Some firms have entire teams dedicated to helping portfolio companies with hiring, strategy, or product development. The firm’s reputation alone can also be a powerful signal to future investors and potential partners.
2. Evaluate Each Partner Individually
The first thing to realize is that not all money is equal. The most valuable investors bring much more than capital: they bring expertise, connections, strategic support, mentorship, and more.
Questions to consider:
What value does this investor bring beyond capital?
Have they invested in similar companies before?
Do they have a strong network in your industry?
Are they known for helping with hiring, strategy, or partnerships?
If they were not investing in the company, would you want to work with them?
Do Your Own Reference Checks
It’s entirely reasonable, and recommended, to ask a VC for references. But don’t stop there. Reach out to founders from their previous investments, especially those that didn’t succeed. Understanding how they handle failed investments can tell you a lot about their character and support style.
3. Evaluate Each Firm as a Whole
An investment partner is part of a larger firm, and the firm’s brand and resources also matter. Sometimes, the operating team or the firm’s network can provide more value than the partner themselves.
Questions to consider:
Who else at the firm will be involved with your company?
Does the firm’s brand and reputation align with your company vision and stage?
How will this firm’s involvement signal your momentum to future investors or partners?
What additional resources (hiring support, industry connections, marketing help) do they offer?
Be cautious if the firm’s values or focus areas don’t align with your own. Taking money from a high-profile firm might look good on paper, but it can backfire if they expect you to shift strategy to fit their portfolio.
4. Balance the People Around the Table
Your goal is to build a strong, diverse support network around your company. Each investor brings unique strengths and perspectives, but it’s essential to balance those voices to avoid redundancy.
Questions to consider:
Are you getting a variety of perspectives and not just more of the same?
Does your investor group have a diverse set of experiences?
Is there overlap in their networks, or are they connected to different circles that expand your reach?
Do the various firms and investors complement each other in terms of expertise and connections?
Consider how adding a new investor affects group dynamics. You don’t want a single loud voice drowning out more nuanced, thoughtful input from other investors.
5. Be Mindful of the Long-Term Relationship
Investors are not just writing you a check, they’re becoming long-term partners. You’ll be working with them through good times and bad, so it’s essential to choose people you can trust and communicate with openly.
Questions to consider:
Are they transparent and direct in communication?
Do they provide constructive feedback without micromanaging?
Do they have a history of supporting their founders through challenges?
If an investor shows signs of being controlling or overly critical during the pitch process, that behavior is likely to escalate after they invest. You need to judge for yourself if they are in it for the long haul.
Final Thoughts
Raising money can feel like a sprint, but it’s better to take the time to choose the right partners than to jump at the first offer. The wrong investor relationship can cost you far more than delaying a funding round.
Great investors do more than just write checks, they champion your vision, offer guidance, actively help you grow, and know when to stay out of your way. Be strategic, do your diligence, and choose partners for the long haul over whoever gives you the best offer on paper.