A Peek Into an Investor's Mind
This article is written by Brian Malika, a Contributor Author at Startup Istanbul.
At Startup Istanbul 2016, we had a panel session with 3 panelists Yousef Hamidaddin, Ozan Sonmez, and Khaled Talhouni, they talked about what investors really look out for.
Ever wondered why someone would willingly offer their money, mentorship time or welcome a start-up founder to their network of experts? Of course, I know you’ve probably thought about this from time to time. And your most probable perception has been that investors do build start-ups so that in case things turn out to be successful, then a certain shareholding percentage will remain to the investor. Well, as much as this perception holds some truth in it, it's not entirely truthful.
What are the Investors motives?
To lead you to understand the investor motive better, first understand that the world is changing at an alarming speed in almost every aspect of doing business. And as such, there is so much competition, anxiety, and uncertainty over the future of businesses across the globe.No one is sure whether their business model will be relevant in the future or not.
Hence the reason why established businesses are continuously looking for emerging innovative ways in the line of their businesses so as to emulate. And guess what? New Start-ups are one key source of new knowledge for stable companies to tap from. And through venture capitals and other forms of investments offered to emerging-start-ups, big companies are able to predict new innovative approaches to do their line of businesses.
Through offering to invests in the scalability of start-ups, big companies are able to negotiate for a share in the projected future of the same start-ups. So, next time you meet an investor, don’t look down on yourself based on the fact that your maybe young and have no money. But instead, view the new business relationship as an equal investment relationship where there is mutual facilitation of ideas to stay relevant in the changing business times.
Having known the clear motive of investors, it's important that you understand what type of investors are out there. Like do we have categories of investors? To get a clear answer to this concern, I would invite you to the next topic below
These are some of the investors out there :
First of all, we have three types of main investors that are continuously looking for start-ups within their line to partner with. So, in order to make better pitching decisions on who you should approach first and then I will urge you to learn about the types of these three types of investors below. And they include :
(1.) L.Ps (Large Partners )
(2.) L.P.Gs (Large Partner Groups )
(1.) Large Partners
These are the type of investors that have allocated a lot of money for investing in start-ups but for one reason or the other, they lack the ability to execute direct control on how the same allocated investment money would be distributed out. As such, these large go ahead and identify a group of partners who will be in charge of managing their allocated investment funds.
Most large partner usually gives out investment funds for large periods of money that would be distributed in certain periods of the calendar year. For example, one large company can allocate ten million dollars, to be divided into two groups of managing partners for a period of ten years.
These large partners usually give strict instructions to the managing partners on how the investment money should be allocated to start-ups. In most cases, the start-up will never come in any contact with the large partners.
(2.) Large Partner Groups
These are the investors that receive money from large partners. And you would be right to say that large partner groups are doing a bid for large partners. Because of their flexible characteristics which include the presence of experts in the particular area of expertise, large partner groups are well placed to select start-ups that are aligned to the interests of the main funders who are large partners and even offer mentorships and necessary training.
Successful start-ups under the leadership of large partners are usually introduced to the concept of large partners (main funders and part of interest ) in bits after bits.
We have people at a personal level who have a lot of extra money that they would like to invest in a promising venture that would give them a return on investment. Such people are usually open to any area of start-up investment but you can easily win their hearts if you have background information on the values they stand for and align your start-up with the same.
Note that we might have other types of investors including Governments, but for this particular article, these three types are considered.
Having now understood the three main types of investors that exist, the ball is now on your court as a start-up founder to be flexible in the way you approach investors. Do not have a one fit all pitching narrative since not all type of investors are looking for the same qualities in your presentation.