Entrepreneurs count on people whose incentives are aligned with theirs. One of the best ways to get this alignment is to have other individuals hold significant equity stakes in the business. As a result, entrepreneurs often seek the advice of their investors, who are eager to provide support as it acts in both parties' best interests. In this article, we discuss six ways outside investors add value to a firm beyond just providing capital.
1. Investors guide CEO's on broad strategic directions
As experienced professionals, investors are often able to provide insights and perspectives that entrepreneurs may not have considered. For example, an investor may suggest a different target market or go-to-market strategy that could be more effective than the one the CEO originally had in mind. By providing their expertise and knowledge, investors can help entrepreneurs make better decisions that can lead to improved business performance.
2. Serve as a reference to other capital providers
One of the most important things an entrepreneur can do when seeking funding is to build a strong relationship with their investors. This relationship can be helpful when raising additional rounds of financing as investors can serve as a reference for other potential lenders. When an investor is willing to vouch for an entrepreneur, it can make the difference between getting funding and being turned down.
3. Give introductions to potential partners
Investors often have a wide network of contacts that they can introduce entrepreneurs to. For example, an investor may know someone who is looking for a product like the one the entrepreneur is offering. These introductions can lead to new business partnerships that can be beneficial for both parties involved.
4. Give introductions to potential customers
In addition to giving introductions to potential partners, investors can also introduce entrepreneurs to potential customers. These connections can help entrepreneurs close new deals and grow their business.
5. Help introduce and close key hires
One of the most important things an entrepreneur can do is hire the right team. This team will be responsible for helping to grow and scale the business. Investors can introduce entrepreneurs to potential hires that may be a good fit for the company. In addition, investors can help to negotiate and close these hires by providing funding or other resources.
6. Provide market perspectives
Investors often have a pulse on the market and can provide insights into trends that entrepreneurs may not be aware of. For example, an investor may know that a certain industry is growing rapidly and suggest that the entrepreneur enter that market. By providing their market expertise, investors can help entrepreneurs make better decisions about where to focus their efforts.
In conclusion, outside investors provide value beyond just capital by serving as guides, references, and introductions to new contacts. They also help entrepreneurs hire key personnel and navigate the market landscape.