I have talked in the past about various pitch competitions where the goal is to refine, practice and carefully hone your presentation so as to whet the appetite of potential investors. Last week I was fortunate enough to spend some time at metabridge (http://www.metabridge.ca) in Kelowna where 15 of Canada’s best start-ups pitched their stories. In the room there was reported to be many millions of investment dollars floating around and this always makes for an interesting few minutes for each of the pitching start-ups.
So let’s jump ahead a little here and assume the pitch was blindingly good, the story was watertight and the investors are fighting each other to get to you first. Whoa, slow down — just because they have money and appear to be happy to give you some, doesn't necessarily mean it’s going to be a good deal for you and your company. Before I go on, let’s just skip back a line or two — when I say “give” you money, I mean provide you funding with some pretty formidable conditions attached. Right, on we go…
Would you marry a complete stranger? Probably not. Should you take money from and undoubtedly offer up a slice of your business to an complete stranger? Again, probably not. This is a dilemma which any start-up faces having received the first signs of interest from a potential investor. The start-up needs to build a relationship with the investor and the investor needs to build a relationship with the start-up.
So, what's your start-up looking for in this relationship? What does your start-up want to get out at this relationship? It could be money, it could be connections, it could be domain expertise — whatever it may be, the start-up must ensure the investor can bring that aspect to the party. Don't forget too, the investor will want to know what they can get out of this relationship because generally they don't just give their money out in a solely public spirited fashion.
I had a client a few year’s ago who went on Dragons Den in the UK and came away with a deal. He didn’t need money, but he was desperate for connections who could help him get into the export market and that was the basis of his relationship with his “investor”. I must add, it went on to be a great relationship and they are still a team to this day with many successful results along the way. But they don’t all work out as beautifully as that so, before you dive in having been blinded by the cash, make sure you are both a good fit for each other, make sure you both have a common vision and common goals and, most definitely, find out what your investor’s future plans are.
The future is almost as important as the present because if you have the desired success, you'll undoubtedly need further help for future growth — the last thing you want to be doing is going out to find other investors to join your original investor to help you on your way.
In a couple of weeks' time we'll look at the key questions a start-up should be asking before they enter into this "marriage".