The 10 Types of Investors
It's been a solid mixture of bloody boring and super exciting doing this investment round, and I can't bemoan the skills I am picking up along the way. What's been really fascinating is the attitude people take with you - those looking to put a little less in, or that know you are twice as sceptical as those that have seen you at an event they respect, despite never having met you before. And so it is, that the money being offered to support our Startup Dream is now coming in thick and fast, offers left right and centre - I am proud to say we have more offers than we have money we want to raise, and as such are in a situation we never would have predicted - choosing our investors.
It seems there are many types of investors;
1) The first type is the overly "positive investor". Usually they are a newer investor, just excited to have an opportunity to support you, and they take pride in discovering you as an opportunity. No matter what you do, this investor has decided you guys are going to go far, your business is a savvy investment and as such, he will speak nothing but positively about even the mistakes you have made. Ask a question and he's there in seconds to help you out. Highlight a mistake and he'll tell you a 100 reasons why its insignificant to your progress elsewhere. Unequivocally, this type of investor, whilst hard to find, is out there and does wonders for your self belief. Try to find at least one of these.
2) The second type is the "negative investor". The person who tells you that the reason they want to invest is because he can see how much you might do wrong, what went wrong on other investments he's made, how many things can go wrong, why they go wrong, and inevitably, why you, without his help, will be wrong about everything. Say something intelligent that everyone else thinks is a valid point? He'll find the one thing wrong with your statement. There is certainly room for this kind of investor - but it can be grating, damaging to morale, and usually they position themselves so as to mentally assert their pedigree and quality, and inevitably tell you why you need to offer them a better rate, or "sweetener" that no one else should have. It's actually good to work with people like this because they will look for all your mistakes before you make them, and that's a good thing - but it's still a negative experience, so you need to be really sure they can genuinely add value to your business before agreeing terms with them, as they will always be difficult, and could even complicate your exit strategy.
3) The third is the "Tech Investor". This is always an interesting one, as they generally possess a mixture of positivity for your opportunity, hesitance due to their expertise in the field of growing fresh businesses, and awareness of how they can help you. The great thing about the tech investor is that usually, if you can get in front of the right one, they are meeting you for one MAJOR reason: They have invested in other companies within their portfolio that can support you, and have identified ways you can support them. This is a very common theme, and if I were providing advice to anyone who was looking for tech investment from a tech investor, and was great at using LinkedIn then it would be to think about what other areas your business can add direct value to your long term strategy within your industry, find out who invested in them, and hunt down that person. They will not only be impressed with your tenacity, they will want to explore the opportunity. This is the best type of investor - they have usually done it all before, have lots of contacts, don't want complicated terms or to make things difficult for you as they understand that is detrimental to all, and will do everything in their power to introduce you to everyone they can, because if they do that well, he is more likely to get multiple exits and become many times richer, than if just one of his portfolio companies do well. This is a great person to know.
4) The fourth is the "speculative investor". This is someone who, quite simply, really doesn't know anything about the space, anything about what you are doing, invests in solid, quantifiable safe investments, and is basically meeting you on a hunch, and is really looking to be sold by you. He has nothing to add to your proposition but money, but will definitely try to make himself stand out from the crowd, mostly because he doesn't want to come across as a rookie. One way or another, you will identify this type of investor immediately, so you will need to decide whether just taking the money is enough.
5) The fifth is the "money/tax efficient" investor. This one is really simple; big tax bill, tax breaks on investing, doesn't really give two shits what you do but would rather burn some money on a punt, than pay the tax man. Fair enough - this is not such a bad thing, he will basically give you the money and run, and you wont have to speak to him again until you exit, so it has its merits - the definite plus side is that they will leave you to just get on with your business.
6) The "done it all before" investor. This guy has been in your shoes, and can definitely add tons of value, but you will have to work your arse off, regularly, to keep him happy. He knows how hard it is to get investment, he knows how hard it is to be a success, and run a business, and he is going to help you, but in a very analytical, and sometimes obstructive way. The more successful he was, the more likely he will be asking you for weekly reports, and providing feedback non stop. This is a fantastic opportunity for outsider advice you cant buy to help you grow but can be a huge distraction during busy times, and they will make themselves feel like your most important investor, at all times.
7) The "ex banker" investor. This is quite often a good one, if they understand what you are doing. Many have more money than sense, but the good ones have lots of money and even better sense. If you are fortunate enough to spend time with one of these, and my advice is don't just take the money from someone like this, really get to know them for at least one long solid meeting, then you can strike lucky. The one thing they will confidently tell you is that they have tons of rich friends, powerful friends, and will give you access to money in a later investment round. This is what you want to hear. This isn't an arrogant statement - this is, in fact, them negotiating with you. They know they are up against tech investors, entrepreneurial investors and so forth, but they want to sell why they should have an investment opportunity too - and money is as good a reason as any. Always try to have at least ONE investor with access to money for later stage funding.
8) The "I believe in you guys" investor. This is someone who doesn't actually care what you are doing, he just thinks that one way or another you, your business partner, and your passion for making something of yourself will eventually work out. Look at Michael Acton Smith. The guy did well setting up many businesses but most came close to failing, even the cool Firebox brand didn't do as well as investors hoped. Yet his investors though he had something special and kept putting back into him. He eventually created Mind Candy and Moshi Monsters (in a completely new field to anything he had done before) and has turned it into a global phenomenon. Some investors just care that they back the right people, so make sure you are always coming across genuine, and passionate. You wont know if you are onto a goldmine now until you look back in 20 years, but if your energy is addictive and your enthusiasm is enticing enough, you will attract investors to you regardless of your idea.
9) The "when do I get my dividend" investor. This is someone who hasn't paid much attention to what you have said, is looking at investing in a few startups, and really cares about short term gains, and wont ever get their head around your product, vision, or opportunity for exit. My advice on these ones is to forget about them immediately.
10) The "These are all the things I can do for you" Investor. This is a tricky one - usually they will spend a lot of time selling their services, network, contacts, experience, etc and then one of 2 things is likely to happen. The first is that actually, they will start gently telling you about all the mentoring they do, and how they can help you, and you will slowly but surely realise they are not an investor, dont really have any liquid cash, and are actually trying to pitch you for business. This takes a while to clock onto as it seems pretty unlikely, but it certainly is a wind up once the penny drops! The second, is that they will probably offer you to join their incubator/leadership programme/"insert startup acceleration name here" type operation. Usually this comes at a much higher value to them in terms of equity stake VS real attributable value, but it's not to be ignored. It can, in fact, provide a lot of value to your business, so long as you aren't precious about your equity.
Which we are...
So there you have it - from doing 2 rounds of investments, entering and winning competitions, and meeting over 50 investors - I feel I have only scratched the surface, and yet seem to have accidentally written a short novel on it. If you have ever got to the end of this post - congratulations, and I hope it provides some value.
If you need any investment tips, introductions, advice - hit me up on twitter @murraymuzz and I'll gladly help!