The importance of investments
In business, investment can be key for a startup. And for some businesses and startups, it can be the difference between make or break.
Investors come with more than money for businesses and they can unlock doors that businesses and startups may otherwise have never had access to or thought of. There is also a wide range of different companies and businesses that can help facilitate startups and early-stage businesses’ routes to funding (source: Connectd).
However, although investment and funding come with swathes of benefits, there are a number of considerations that every startup and business owner should think about so that they are fully informed when it comes to starting that journey. It will also help businesses decide whether or not investment and funding are indeed for the business in question of if another route is preferable and more desirable.
Equity and shareholdings
As a startup founder, you will more than likely have a large portion of the equity in the business and you will also likely have a majority shareholding. As businesses get funding, equity gets ‘diluted,’ which means that the strong equity a founder or director may have at the outset, will need to be reduced to some extent over time and as investors come in.
Although this may seem initially like a bad thing, it will depend on the stage of investment the business is up to and will also be down to negotiations between the business and any prospective investors. However, there are many multi-billion-dollar businesses for example where the founders and owners own less than 20 or 30%, but the overall valuation of the company will more than compensate for this.
Generally, businesses that have seed-funded themselves will not have to give away as much equity from the outset, as seed funding is often a stage during which startups will have to give up more equity than they will in subsequent funding rounds.
Terms of investment
When investors come around, they will be parting with some of their money but will also wish to impart and bestow some terms and company structures, which their investment affords them.
As a business owner, you may not be used to giving up any degree of control over your business. However, as the right investment can unlock doors and opportunities for the startup in which they are involved and as the investor will by their nature have a great degree of experience and expertise, this control is not always a bad thing.
You should however have a broad idea of how much control and therefore equity you as a founder or startup owner would be comfortable with relinquishing as this will form at least part of the negotiations you will have with any investors.
Finding the right investors
There is no ‘perfect’ investor, but as a business and particularly as a startup, you will have at least a broad idea as to what kind of investor would be the best fit for your business. Also important to think about, is what has the investor done in the past and what have they invested in which would otherwise be very relevant and important to your business.
Investors will commonly have a niche or specific area in which they invest and in which they will routinely operate. For example, you may find investors who gravitate towards certain industries like property technology (prop-tech) or perhaps even something as specific as wholesale cleaning products (more information) of a particular nature; there are investors for every purpose and every type of business and industry.
Importantly, take your time and consider what is right for your business and what, as a business owner or founder you see as most important to your business and ultimately, your business and professional goals.