The right investor can create a virtuous circle accelerating your company’s success that goes well beyond the dollars invested.
To ensure a successful long-term relationship, it is critical that you have alignment of philosophy and values with your key investors. To optimize the outcome, the criteria used to evaluate potential investors should not just be valuation but also include strategic alignment, cultural fit, and other incremental benefits the investor can bring to the table.
The profile and reputation of the investor is often very important, particularly if you are an early stage company. A high profile investor can add immediate credibility to your company which can have many tangible benefits such as increasing the probability of securing important commercial partnerships and other sources and types of capital. The investor may also be able to provide experience and relationships that can facilitate important strategic initiatives such as expanding into new markets.
Beyond a compelling investment opportunity in terms of return on capital, investors are very focused in downside protection, especially when investing in private companies which tend to be illiquid long term investments.
For example, it is very damaging to a private equity firm’s reputation and overall portfolio performance track record if an investment evaporates. In terms of evaluating the potential downside, investors will look at tangible and intangible elements at the company. The management team’s track record on delivering on financial and business targets over time is an important element that can be measured. Other important elements like the company’s governance structure and corporate values will also be assessed. When undertaking due diligence, investors are evaluating the strength and character of the leadership team as much as the company.