Finding a Quality Investment Partner to Scale Your Business
Strong entrepreneurs often find that in order for their companies to continue to grow and scale they need to take on additional capital. Sometimes the additional capital required to grow the company takes the form of an SBA loan from a local bank. Other times it comes from an angel investor or private equity investor who has expressed an interest in investing in the business. Private investment has the potential to catapult the business to new heights, but if the wrong investor is chosen, the business can tank and a life of hard work ends just as quickly as it started.
Let's assume that your business is in the scale-up stage. Scale-up companies are companies looking to grow in terms of market access, revenues, growth of employees and might be collaborating with other established companies to create win-win scenarios.
Companies in the Scale-up growth stage are looking for Accredited Investors. As defined by the U.S. Securities and Exchange Commission, an Accredited Investor must have a net worth of at least one million US dollars, excluding the value of one's primary residence, or have income of at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year.
So, how do you find the right investor? It requires a lot of networking, research, and inquiry. Reach out to the people within your professional network. Seek out those that bring experience and fill a void within the framework of your business. Identify a shortlist of potential investors that might meet your investment and business objectives. It might sound silly, but a "shortlist," means identifying more than one potential investor. Ideally, you will have four or five potential investors from which to choose. Don’t sell yourself short. You have worked very hard to grow the business to where it is today. Take your time and make wise decisions.
Most Accredited Investors are savvy investors. They tend to make investments in industries in which they are very familiar. Look for the right business partner by looking at people in your industry who might have been a part of a business that recently sold. Oftentimes when a company sells, a cash windfall occurs within the local community. New wealth is generated and new investors are created who bring specific industry expertise and have a desire to invest a portion of their newfound wealth.
When you’re ready to conduct in-person interviews, make sure it consists of you, your other business partners and your prospect. It would be unprofessional, not to mention uncomfortable, if your prospective investor were to choose to bring references, family or friends with them to the interview. The interview may be staged over several days and should be designed to determine if the prospect will naturally fit within your organization.
During the interview, figure out if they offer the skills and expertise beyond just having money that can benefit your business. It is important to have similar hobbies, interests, religious and family values as your prospect. Figuring out that you don't have similar values in the interview process is a lot easier than figuring out that you don't have the same values after this person has become your business partner.
Allow your management team to interview the prospective investor. This is a good way for the investor's skill-set to be vetted and challenged by your team. Keep in mind that you will likely need their buy-in in order for a new investor to join the organization in any capacity.
After you've conducted your interviews, remember that time and sleep are your friend.
Don't be pressured into closing on an investment. Business volatility comes and goes, but entering into a relationship with a bad investor can have lifelong consequences.
If you are fortunate enough to find a quality investor and business partner, then take a few minutes to celebrate the new opportunity afforded to you; but keep these key factors in mind as you follow the path to finding a quality investment partner.
Brady Whitesel is the Managing Partner of Go Partners LLC.