Without fail, at some point along the winding path, nearly every start-up faces the exact same dilemma.
"We need cash!" said, almost every startup founder ever.
And, some will take it wherever they can get it. But, all investment capital is not the same.
Sure, on a bank statement a $50,000 deposit looks just like another $50,000 deposit - but as anyone who has started and built a business will tell you, it's "strategic" investors that can be the difference between success and failure. We’ll focus on the investor – the terms of the investment are for another post.
So, what is a "strategic" investor? And better yet, where can you find them?
They Know Things or People You Don't – The Network
Rarely does the founder of a start-up know everything. I mean, everything - from developing their product or service, finance and accounting, sales, marketing and on and on. And yes, if you have enough capital you can certainly look to hire and build a team with all these skills. However, another way to bite off big chunks of your needs early on is find an investor who brings more than cash to the table.
For example, when I founded my company Walkie Chalk LLC (www.walkiechalk.com), where we invented a patented stand up holder for sidewalk chalk, I took on one very strategic investor. We had a number of friends and family offer to invest, several were asking me to please allow them to invest – that’s a great feeling. I could have raised more money than I needed from a range of people, but we knew better!
Side note: I would caution anyone to think long and hard before you take family or close friends money into your business.
In our case, our investor was a friend, but he was also one of the most successful and connected networkers around, a master on www.Linkedin.com too. Quite simply, he “knew everyone” and his nature was to put people together. He also gave us access to his company’s in-house, world class, CFO/CPA to handle our books. It was obviously in his best interest as an investor to make sure our accounting and done properly - but for us, this was invaluable. What toy inventory wants to deal with accounting? Yuck!
Our accounting, budgeting and more was done correctly and well, and at very little cost to us. Within weeks he had also set up meetings with key contacts in the toy industry for us. People I did not know, but certainly wanted to meet! One such meeting led to us finding our graphic designer who’s help on our packaging was the difference in Walkie Chalk getting into Toys R Us, Walgreen's and Hobby Lobby. Another meeting led to our eventual manufacturer.
That happened because of our strategic investor.
He knew people we did not and made connections (again, in his best interest) that we did not have. This is not to discount the passive investor who is willing to fund you and step aside but as you can see, having someone in your corner who can make things happen for you. It does take work when you find someone like this – most critically: you have to let them know what you need. Think of how they can help. When a strategic investor and a great startup entrepreneur comes together, it’s a recipe for success.
Think Long Term. Have Patience.
If you've never raised capital for our own business, another aspect to consider is the temperament of your investors. We can assume you want to build a solid company and in most cases, that takes time. It could also require more capital down the road. You will also have enough pressure on you just working to get your business off the ground. So, having an investor who is patient and willing to help you along the way is essential. If you know that the amount of money your investor is about to contribute is sensitive to their daily well-being, don't take it. If they will expect updates every week on how their money is doing. Don't take it.
Again, it’s vital to find an investor who is interested in helping you achieve your goals, which ultimately should match their goal of growth and a return on their investment.
Where do I find my “strategic” investor?
It will likely take work and networking of your own.
Just like a great idea for your business, a great investor for you is out there. You probably know them already.
Think of the folks in your network who 1) You believe have the means and temperament to invest in a start-up business, 2) They either “know everybody” or have contacts in your industry, or 3) They themselves have a very specific skill set that applies to your business. A great example of this – you are an inventor, working on changing the world with your new patented super creation – a great strategic investor could be your IP attorney.
Look around your network for the people who have shown interest in supporting you in the past, who know folks or have skills – and you may just have your strategic investor there in front of you!
Now, are you ready to pitch them your idea?