When you’re creating your investor avatar, you first need to understand that there are basically two types of investors – 1) Financial Investors & 2) Strategic Investors. And you’ll need to respond to each differently.
A Financial Investor is always looking for a return on their capital, not just a return of capital. The reason they’re investing in your business is to MAKE MONEY, not run a charity, not anything else – just to maximize their financial returns, over a specified period of time. And money can be a great motivator for great results!
They look at investments in a different way. They could be looking at the market opportunity, product, traction or track record, team and more importantly exit potential. And it’s the last point – exit potential – which makes it important for them to figure out how they’re going to sell, well before they even buy. Which is also why we stress this when crafting your pitch deck.
A Financial Investor wants to make sure their money is being put to use, so they’ll often take board seats and add value by introducing you to a larger network, or help in terms of strategy, hiring, financials and more importantly industry insights as they work across a portfolio of similar companies. They’re like consultants in that they can work with various companies and gain a mosaic of insight, unlike a focused Strategic Investor.
A Strategic Investor is a different beast, they’re not just in it for the money, though that is part of the raison d’etre for being a corporate body. They have a more ‘strategic’ point of view to investing, it could be because your business either complements theirs and add value in some way or even be seen as a competition, they’re just willing to buy out.
It may be that they don’t want to spend time building what you did, instead they’d rather use their capital or money in an efficient way, and just buy yours. This accelerates their revenue, growth, market, insight and development roadmap.
They understand the time value of money. And this where we get the “A” from M&A or Mergers and Acquisitions. In fact, Financial Investors may even sell your company to a Strategic Investors.
Strategic Investors may be a bit more forgiving and patient when it comes to growth. They’re not in rush to maximize a return on their investments like a Financial investor. As a business owner, entrepreneur or founder who is selling… you may be given freedom to continue building your business as you have, without much pressure to deliver on the milestones within a quarterly time frame. Sometimes, their strategy could be to simply create synergy between their other companies, and if your company fits the bill, you’re in luck.
Well, now that you have an idea of the difference between Strategic Investors as against Financial Investors, you may want to draw up your investor avatar to match what you really want from a deal, be it selling or growing your business.