How to choose the right investor for your early-stage startup

Where your capital comes from is almost as important as having capital.

As an early-stage founder you rarely have a moment to pause for breath, but any time spent identifying where the smartest money will come from is time well spent. Here are some specific things that you could look at before selecting your investors, especially for your early stage business.

FIND RIGHT INVESTORS FOR YOUR STAGE AND THOSE WHO CAN ADD VALUE

Your relationship with an early stage or angel investor is a unique & extraordinary one. Typically for early stage businesses, you will be raising from angel investors. Learn as much as you can about those angel investors and their willingness to add value to what you are doing, not just now, but over the long term.

These investors could potentially be with you longer than any other investor so you need to be comfortable with them, ensure that there is a culture fit, and you have a good working relationship with them. Only when they understand you and what you are trying to build, will they be able to add real value to your business.

Look for every indicator that they believe in you, are excited by your vision & are ready to place the full force of their experience behind your business.

A measure of their commitment will be the value they offer beyond the capital. Not just their money but also their time. Not just their expertise from their past experience but also the expertise of those in their network. Not just advice but also tangible business growth opportunities.

ENSURE YOU NEGOTIATE FAIR & EQUITABLE TERMS FROM THE START

We are not talking about valuation, but terms of the investment. Always remember that your seed round sets a lasting precedent for your future rounds. All downstream investors will look to the terms your agreed with early stage investors as a benchmark for their investment. Investors are unlikely to volunteer terms that are unfavourable to themselves but, if you have done your homework & can justify your proposal, their offer will likely be respectful & crafted with a view to establishing a productive partnership.

Seek out the publicly available information & advice that will help you determine your terms, goals & negotiating strategies. Here is a free and extremely helpful resource available for founders in Singapore.

DO YOUR DUE DILIGENCE ON YOUR INVESTORS

And this is a word of advice not only for the angel or seed stage, but throughout your fundraising process. Do diligence on your investors, as strictly as they would do on you. Here are some points that you should look out for before bringing an investor on boards:

1. Who are the other companies they have invested in and if they have invested in businesses that are similar or complementary to your own
2. What stage do they invest in and is it relevant for you?
3. How likely are they to support with follow-on capital or support your business as you mature?
4. How much value can they add or have they added in the businesses they have invested in?
5. What role would the investor play in your business?
6. Typically how involved and invested are they in the companies they invest in?
7. Do they have demonstrable expertise in the industry/sector you are operating in

These early-stage partnerships can be some of the most important & exciting you will ever forge. Having an early-stage investor with deep pockets is great but equally important is having an investor with a deep commitment to seeing you & your business thrive. Follow these principles to help get the right investors for your business and build as strong a cap table as you can, because that can potentially become a strong differentiation for your business.