Event Recap

BFS '18 Talk #7: Choosing the Right Investor

April 19, 2018

Let’s say you hit the jackpot and have multiple investors interested in your business, all of whom have the capital to make a big difference in your growth journey. Who do you choose?

Or let’s say you’re just beginning your search for funding. You know you want investment but are overwhelmed by the sheer number of options. Who do you approach?

The final Business Funding Show 2018 panel met with the goal of helping entrepreneurs answer these questions. The panel included a range of perspectives from these experts in various areas of UK business finance:

  • Henry Whorwood, ‎Senior Consultancy Associate at Beauhurst
  • Michael Blakey, serial angel investor and founder of Avonmore Developments
  • Paul Fauset, Senior Investment Manager at Angel CoFund
  • Eyal Malinger, Investment Director at Beringea
  • Mark Brownridge, Director General at Enterprise Investment Network Association (EISA)
  • Ishaan Chilkoti, Investment Director at Nesta Impact Investments

Here are their answers to some common questions.

Aside from money, what should I, an entrepreneur, look for in an investor?

“Alignment,” says Chilkoti. This word summarises the number one thing the panellists agreed is important in an investor. You want an investor who has an understanding of your sector, who you get along with, and who shares your long-term vision for the company.

Malinger tells entrepreneurs to think of an investment partnership as a marriage. You wouldn’t jump into a wedding, so don’t jump into this until you find someone whose goals and values match and complement your own.

Fauset and de Vasconcelos add that with angels, in particular, you want an investor whose skills, expertise, and experience are relevant to your business and who understands the ups and downs of early-stage businesses. De Vasconcelos warns against investors who fixate on quick financial returns and panic when the business hits a low in the growth process.

Another important consideration is whether the investor has enough capital to contribute to your the future rounds of funding, says Blakey. Having repeat investors on board gives you a cushion and makes it easier to attract additional investors in the future.

What are the benefits and challenges of having multiple investors?

Fauset points out that, on one hand, having many investors to consult and keep up to date can become bureaucratic and time-consuming, but on the other, it gives you a broader network to draw from and more pockets to delve into for future rounds.

Blakey agrees. You don’t want to have just one investor, he says, because if they don’t have funds when you need it, you’re in trouble. But while it’s unusual for investors to try to push entrepreneurs out of their own companies, it is possible to have too many cooks in the kitchen.

De Vasconcelos recommends finding one or two lead investors who will give their time and support generously. The rest will be more passive investors, who will “stay out of your way” and only speak up when they have something unique to contribute, like a difficult-to-reach contact. Blakey adds that lead investors can often help you find minority investors.

If you don’t have a website, how can I get in touch with you?

As a full-time angel investor, Blakey replies to every single email he receives. Most angels, however, cannot do this and may not even read the whole email without a recommendation from someone they know.

LinkedIn is a great tool for finding someone you know who can refer to your angel of interest. Pay special attention to people in companies that angel has invested in before: this, Blakey says, will result in “an instant meeting.”

Blakey and De Vasconcelos offer some tips for making that first contact once you have an “in”.

  • Don’t use a cookie-cutter template email; they will know. Tailor each email and make a personal connection. For example, tell them, “We’re doing something similar to that company you invested in” or “We’re in the sector you like.”
  • If you ask for money right away, investors will put their guard up. Secure a casual meeting, then go from there.
  • Start small. Ask for half an hour or so over coffee with the investor. Angels are always on the lookout for their next investment, so even if they’re simply giving advice, they will look at you as a potential partner.
  • If the angel you’re talking to isn’t interested in your business, ask them for introductions to others who might be.

If angels are difficult to reach without a referral, VCs are even more challenging. Malinger says that VC firms are unlikely to respond to cold emails, even to friendly requests for advice or invitations to get coffee together. A referral is essential.

How can I do due diligence on an investor?

For the most part, you’ll use the same methods investors use to do due diligence on you.

The panellists recommend face-to-face meetings and references from companies the investor has already invested in.

Face-to-face meetings give you that important “gut impression” of the investor. While it’s best not to ignore your intuition, however, it’s wiser not to rely on it alone. Gauging an investor can be difficult, says Blakey, because many experienced ones know exactly what to say to make an entrepreneur want to work with them.

To avoid being manipulated, make full use of references. When you question previous partners of the investors, don’t only ask, “Do you like them? Are they nice?” Ask, “Do they allow you to experiment and fail? Or do they only care about meeting targets and panic when you veer off course? How do they react when things don’t work out as planned.” You want an investor who won’t be an obstacle to your entrepreneurial risk-taking, and this is one of the best ways to find out if this investor will be.

What does 2018 hold in terms of investor trends?

“Tech, innovation, growth,” says Brownridge. That’s where UK government wants investment money to go. They don’t want to lose strong companies to the US and are offering incentives to keep them in the UK.

Malinger and Fauset point to a few sectors that will be especially hot: blockchain, cryptocurrency, AI applied business contexts, and autonomous driving and other mobility technology.

Many entrepreneurs focus on selling themselves to investors and put little thought into whether the investors they are pitching to are truly the right match for their business. Remembering these tips will help you not only win investors’ interest but also determine if they are worth yours.

The Business Funding Show began as the first exhibition in the UK and EU focused exclusively on business finance. Today, in addition to the flagship exhibition, BFS runs a series of events throughout the year aiming to educate entrepreneurs on different aspects of business finance and connect them with top funders.

Discover other exciting BFS events, such as funding exhibition, workshops, and networking parties and secure your tickets at bizfundingclub.com/events.

Do you have a question? Contact us now!

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