February, the month of “love” and celebrating relationships. We focus on the similarities between personal and professional relationships. Just as you would think deeply about the compatibility and long-term connection with your partner, it is crucial for entrepreneurs to ask themselves key questions in order to attract a suitable investor. With our experience of preparing many entrepreneurs as they seek investment, TSG has identified the following five key factors every entrepreneur should consider before they and their prospective investor say, “I Do”.
1. Ask around! Make sure your investor treats business partners as such, and is not just demanding results. Just as they conduct due diligence on your company, do the same to them by inquiring with current and former partners how their experience working with the investor has been. It is also important to ensure support can be provided mutually, not only financially but also emotionally in order to create a long lasting relationship.
2. The Prenup. To some people this might be a red flag. However, investors are acting in their best interest, therefore entrepreneurs should not immediately decline, but instead have a professional review the term sheet in order to determine its mutual benefit. It is often the case investors provide their own term sheet, however, it is important for entrepreneurs to have their own. This shows preparation and professionalism.
3. Can you two really make things work? Working with an investor will sometimes be rough, full of ups and downs. Just as in a personal relationship, make sure there is chemistry between the investor and entrepreneur, and that both parties are putting the effort for success. Setting clear expectations from the beginning allows parties to align their mentalities and be better prepared when hit with an inevitable speed bump down the road.
4. What you should expect to lose when entering a partnership. Life is full of compromises, and personal along with professional relationships are no exception. Having a clear understanding of compromises your company is willing to make before discussing them with investors puts you in a better position to negotiate effectively. This will demonstrate attentiveness to investors and allows for a clearer understanding of the agreement.
5. How much information is enough to make a decision? Truth of the matter is, providing investors with as much information about your business is crucial in their ability to make an educated decision. This will enable all parties involved to make the most educated decision with the information they have. In order to ensure they have all the information they need, it is important to have your business plan, pitch deck and financial projections as accurate and up to date as possible.
In today’s environment of demanding things immediately, it is tempting to try rush the process of preparing for an investor. Taking a step back and ensuring this partnership is mutually beneficial will allow your company to reap the rewards of your care in the future. We understand the urgency of funding for entrepreneurs, our recommendation is to conduct proper due diligence and ensure your company is fully engaged and prepared to enter into this long-term commitment.
Stay for a bonus interactive activity with local Master Relationship Coach, Emunah Malinovitz wine, chocolate, and networking!
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