6.9 Assess Other Attributes

You should make a serious attempt to understand what makes your potential investor tick. Let compatibility and complementary styles guide you. Try to get a sense of the investor's psychological make-up. Did you know, for example, that some investors rely on their intuition when it comes to choosing a project? Here are some areas that you should check out.

Key
Question

What should you ask an investor?
Before you speak to a potential investor, know what you want to ask. Here are some questions you should consider.

Select your investors wisely. They will be your business partners. Consider their reputation, commitment, compatibility of goals, time horizon, flexibility and integrity. Be sure to ask potential investors the right questions when you make contact.

Character, Reputation and Credibility

What kind of reputation does the investor have? Is this a person of integrity? Look at previous investment deals, the level of the investment, the size of company and the success factor. Talk to colleagues and professionals; learn what you can about the investor's background.

Commitment and Staying Power

You want to make sure that your investor is firmly established and not facing any financial constraints. After all, you may need extra funds to deal with a future problem or take advantage of an opportunity.

It often takes time to fulfil growth plans, so you want to make sure the investor is committed for the long term. Also consider whether your strategies are compatible. For example, what if you want to refine your product later on? Would the investor think you were getting carried away or go along with the idea?

Level of Involvement

Some investors, typically angels, tend to take an active role in a business. Others, typically institutional investors, tend to take a passive, hands-off approach. Which type do you prefer?

If you're used to running your own business you may be reluctant to consider an active investor. Just remember, an active investor brings much more to a business than just money. This person can advise you on critical matters, take part in strategic planning, provide useful contacts and solve problems. Active involvement can also cement an investor's commitment to your business, which can be important if things go wrong.

This diagram shows the general level of business involvement that you can expect from the various types of investors.

Personal Chemistry

Do you and the investor get along well together right off the bat? Do you have similar ways of looking at things, make decisions in the same way, or have common interests? Sometimes, if the chemistry is right, private investors will invest in a project that doesn't fit their initial preferences. If your styles mesh, continue to explore the possibilities. Even if the investment doesn't work out, the investor may become an advisor to you, or a valued member of your network.

Finding a suitable investor is a lot like finding a marriage partner. You're looking for attributes that make for a good long-term relationship: commitment, mutual interests and trustworthiness.

Questions to Ask Potential Investors

Before talking to prospective investors, develop a list of questions you would like to cover. Here are some you may want to work into your list.

What role do you want to assume in our business? Do you intend to be an active or a passive investor?
What is your decision-making process for approving capital expenditures?
What type of restrictions would you want to impose on our business?
Will you agree to a confidentiality agreement?
Who will hold the rights to our technology (i.e. patents)?
Are you dealing with our competitors (i.e. are there any conflicts of interest)?
What restrictions and reporting requirements are you going to implement?
Can you comment on your experience as an investor? Who are your contacts? Do you have any references?
What deals have you completed in the past?

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Investing Chemistry at Innov International

Pierre Martin, founder of Innov International (a company that makes office furniture), was able to attract a private investor who had intended to invest in an agri-food company. Mr. Martin's enthusiasm for the project (and his solid background and contacts in the industry) convinced the investor not only to invest but also to become an active member of the management team. The chemistry was just right.

Mr. Martin and his associates got what they wanted — an active investor who could be a valuable resource to the management team by providing contacts and experience in addition to funds.

Mr. Martin and his partners found that private investors had fewer requirements than venture capital firms and funds. They also found that they preferred working with a board of directors composed of people who had invested their own money rather than representatives of venture capital funds. With private investors, you know who the directors will be and they are likely to be very frank — with funds, you don't know who the representative will be.

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