As the region’s startup scene continues to grow exponentially, most entrepreneurs who fundraise for their startup are doing so for the first time. While the rest of the media laud the success stories and cover a few failures, we’re trying to provide a guide on how to navigate the industry. It is a complex process to raise money and doing it the right way is even harder.

As most people know, not all investor money is created equal. However, most founders are so eager to fundraise that they will take money from whoever is willing to open up their pockets. This mistake can lead to quite a few issues:

  • Investors that do not have your best interests at heart
  • Lack of strategic value-add, so there is no upside beyond the money
  • Conflict in management style, which can lead to something extreme like a takeover bid of your company

To prevent this from derailing your company’s growth and getting the right investment, here are a few things you should keep in mind when selecting an investor.

10 things they forget to tell you about investing in startups

Look for the right fit

This sounds generic I know but bear with me here.

person holding red jigsaw puzzle

There are usually three key stages when founders should fundraise (depends on whom you ask, as there are multiple different theories). They are:

  • The initial stage of looking for product-market fit, which often means friends and family money
  • Growth stage is usually the impetus required to get a company from a good valuation to a great valuation through increased revenue and market share
  • The exit stage, or the stage where investors come in to help do a final push to drive up valuation before an IPO or acquisition

So if you’re in an early stage startup, often you’re looking at angel or seed investors who are able to give you the right connections, resources beyond money and guidance on how to build your company. However, it is up to you to find out what is the core competency of your potential investor.

SaaS startups shouldn’t be looking at hardware startup investors. If you’re a Software-as-a-Service company, you wouldn’t want to reach out to investors who specialize in industries like fintech or AI. You should be looking to raise money from a SaaS-focused investor, who has the experience, skill, and domain expertise to help you scale or bring your product to market. They often have the expertise and portfolio to help you acquire customers easily through their connections.

Evaluate your investor the way they evaluate you

Just as investors will evaluate you, you should evaluate their fit and suitability to your startup in the same way. We usually suggest 3 criteria:

  • Money offered and valuation. Look at what are their usual deal sizes, or how much are they offering?
  • The strategic fit, which we covered above.
  • Investor reputation, which is important to a growing startup that needs customer trust.

person writing bucket list on book

There is no easy way to gauge the reputation of an investor, so be prepared to do a little prep work. Why you ask? Well, the simple answer is that the more respected a venture capital firm that invests in you, often makes it easier to secure funding for your next round as other investors are more keen to come onboard.

Do your homework and make a judgment call on your potential investors. There is unlikely to be a perfect fit, so find one that ticks as many boxes on your list of criteria. You may have to forgo some benefits you’d like, but have a few must-have criteria in your mind so you can be sure you don’t compromise too much.

The challenges of investing in Southeast Asia