Smart investors can be individuals investing from their own funds or professionals representing the interests of clients who have placed funds with them. They invest those funds based on a deeper analysis of risks/rewards of each specific opportunity. At the extreme end of this spectrum are highly skilled teams from reputed venture capital and private equity firms with substantial staff resources who will conduct deep and exhaustive research on all aspects of a potential investment before committing funds.

 

Indeed, the commitment of one of these highly regarded professional firms is the highest form of validation that an entrepreneur can receive; an investment from a top venture capital firm can usher in a wave of co-investors and blue-chip service providers who can provide the most likely path to future success. The first step in developing your fundraising strategy is to realistically match your firm’s financial requirements and story to the types of investors that can get the job done. If your goals are modest—for example, starting a workfrom- home services business—friends and family investors may be sufficient.

 

However, if you plan to grow a highly successful firm employing large numbers of employees and eventually seek an exit via an initial public offering (IPO), or a merger or acquisition with a larger company, then you need to prepare to deal with highly sophisticated investors. That means building a strong story that motivates them to invest in your firm vs. the many others they evaluate.