As an entrepreneur, it is important to understand the role an investor will play in your business. It is also important to know what type of investor you need or want for your business. In the book, “Winning Angels”, it breaks down the roles of an investor to a startup into five categories.
A silent investor is an investor who role is to simply invest money into the startup. A silent investor is not looking to be involved in the business directly. They are looking to make a sound investment with the hopes of gaining a reasonable return on that investment.
Another role an investor can play is called the reserve force. From what I have read and witnessed, this seems to be the role of many investors. The investor not is available whenever the entrepreneur requests their help in certain situations or circumstances. The entrepreneur may seek advice on a certain deal or look for the skills and knowledge the investor may possess.
The team member role of an investor works directly with the company in a part-time or full-time role. As a team member, the investor can have a good or bad impact depending of the knowledge they have and the relationship between the entrepreneur. A good relationship would consist of the investor adding value to the company and fits into the management team. Having an investor as a team member can also hinder the startup. It can bring unwanted tension to the team and cause a strain on the relationship of the investor and entrepreneur.
I believe the as an investor the role of a coach can have the best impact on any startup. Entrepreneurs who are starting a company are the ones making all of the decisions and creating the vision for the company. It helps to have someone who has been there before and has the experience to bring to the table. It reminds me of the movie The Godfather. Even the Godfather needed a consigliere, an advisor, when he needed counsel or a trusted opinion on a problem or situation.
Lastly, there is the role of a controlling investor. If you are an entrepreneur starting the business then this type of investor will more than likely not work. The investor in this role becomes the head entrepreneur and takes control of the company. In my opinion, this type of investor could only work if the company is already established, is struggling financially as well as with the business model, and is looking for an investor to take control and turn the company around.
As an entrepreneur of a startup, you must decide what role you are needing an investor to play. There is an article from Business Insider called, “What startups should look for in an investor” which gives some good advice for entrepreneurs. The first thing an entrepreneur should look for in an investor is experience in the industry. This will be a great benefit for startups who are just being introduced into the market and industry. The second piece of advice is to find investors who are well connected and have a big network. Great connections can add so much value to a startup. The final tip is to find an investor who has financial strength. As a startup, you can only predict and project costs and sales to an extent. A startup may seek more money for inventory, additional costs, or to introduce new products or services into the market. Having an investor already a part of the company who is able to invest more is a real asset.