How to find the right
investment partner

Finding outside capital to grow and continue the legacy you have built is an important decision in the lifecycle of your business. Although valuation and price are important, finding a partner with long-term alignment can be equally important to founders who care deeply about the organization culture, business practice and strategies that have been put in place to drive growth and value over years and decades.

Different types of investors offer different types of strategies. How can you identify whether a potential investor’s strategy will preserve the inherent success factors and DNA of the business going forward?

Here are some considerations and questions to ask when evaluating a potential partnership:

Which type of investor should you look for?

There are a few categories of private company investors that distinguish themselves based on the stage of their target companies’ lifecycle as well as the type of relationship they maintain with their portfolio companies. For a mature business, here is an explanation of some of the options:

• Late-stage venture capital and growth equity investors look to invest alongside businesses helping them reach the next inflection point. For example, they deploy capital to fund a bigger sales and marketing push, make enhancements to products that have already achieved product-market fit, for strategic acquisitions and “bolt-ons,” or to allow owners to have a liquidity event and cash out.
• Strategic acquirers or other companies looking to purchase your business may operate in like-kind businesses already. These investors may be looking to quickly blend two businesses and do so by consolidating, creating synergies and restructuring your business quickly after sale.
• Traditional private equity firms purchase businesses to invest in their growth and then turn a profit by selling to the next highest bidder, typically in 3-5 years. In some cases, private equity firms seek to replace or restructure upper management and business processes to retain control of operations and drive short-term returns.
• Private investment firms are vested in the long-term success of their portfolio companies and take a 20+ year view on their potential investments. Some firms offer in-house subject matter experts to aid in driving the growth of their portfolio companies at the option of company leadership. Investment firms typically value continuity of leadership and maintain a collaborative partnership.

Can the investment partner help your business achieve the next level of growth?

Raising capital provides a new foundation for businesses and acts as a catalyst for growth. However, to achieve the next level of growth, businesses should look for an investment partner that knows how to create value beyond capital.

Does the potential investment partner have access to internal experts that can provide additional tools and resources to create value for your business, if requested? If the answer is yes, this type of investment partner can help your business navigate through operational bottlenecks and roadblocks. If the answer is no, your business will likely have to bear these thought-partnership and operational burdens alone, which may limit the trajectory of growth.

Additionally, you might consider a potential investor’s demonstrated approach and history with regard to maintaining executive teams and relying on their operational expertise in running an already-successful business.

What does the investment partner’s website say about a potential partnership?

It takes a few minutes to simply go to an investor’s website and spot check a handful of items. Here are some suggestions:

• Visit the “About Us” or “Team” page. If the investment partner only shows a bench of investment professionals, then they are more likely in the business of raising funds, deploying their limited partners’ capital, and moving onto the next deal and the next fundraise.
• Does the firm maintain a web page for external investors? If so, these investors will want a liquidity event for a return of capital within 3 to 5 years; failure to produce this may mean they would not invest in the next fund. Investors that have a short-term horizon will invariably force short-term thinking because they have a ticking clock on their investment. In contrast, investment firms with a long-term view, prefer to hold their investments indefinitely and are able to make truly rational decisions regarding value creation.

 

Will you value the partnership with the investment firm?

Investment partners can—and should—be more than just a means of raising capital. Businesses who seek a long-term partnership should ensure they are building a healthy and mutually beneficial relationship with an investment partner. Here are some questions to ask yourself:

• Does the potential investment partner support and/or share the long-term vision for your business?
• Does the investment partner’s culture align with the culture of your business?
• Do you think you will enjoy working collaboratively with the investment partner?