Investors are pulling back as fears of a recession mount. In the first quarter of 2022, the financing of global companies decreased a 19% to $143,9 billion from the previous quarter's record high, according to CB Insights.
Whether you're looking for investors to seed your business or later-stage sponsors to help you scale, the partners you choose today will affect the future of your company, from how you run your business on a day-to-day basis to your exit strategy. That's why it's important to choose investors who are a good fit and have a track record showing how they might act when the chips are down.
It is crucial to understand who your partners are before letting them in. Below, we'll look at the key factors start-ups need to consider when evaluating investors in a changing landscape.
get referrals
Consultation with the portfolio companies of a potential investor, both current and past, to see what their experience has been. You'll need to do this without violating any confidentiality agreements, but a key question is how investors have behaved in past recessions. For example, in the second quarter of 2020, when COVID-19 upended the global economy… did they provide portfolio companies with a bridge through uncertain times, or did they tell them to find their own money?
Choose the right partner for the right stage
Ask around your network (including your lawyers) and the investor's existing portfolio to see what kind of reputation an investor or fund generally has and what kind of value they've added to the companies they've backed. You can also ask the funds for a referral to a portfolio company where your investment didn't work out.
Talking to the CEO of a company where things didn't go as planned can shed light on how an investor behaves in difficult circumstances. Just like anyone else, investors have reputations and tendencies, and this is information that is available to founders, if they are willing to search.
