How to Choose an Investor For Your Tech Company

We recently talked through what you need to keep in mind when choosing an M&A advisor for the sale of your tech business. But what’s the right criteria for vetting potential investors?

While receiving an influx of funds can be vital to developing your product offerings, acquiring new talent and expanding your geographical footprint, gaining an investor is about far more than the money itself. You’re essentially taking on a new partner in your enterprise, and while the right investor can help you refine your strategy and steer you towards greater success, the wrong one may dilute your vision, slow down decisions and complicate your eventual exit.

This is why selecting an investor requires the same sort of rigor you would apply to hiring senior executives and developing new products. 

Let’s break down the most important factors to consider, with insights from Jonathan Simnett, who is a managing director at Hampleton Partners and has more than three decades of experience helping software and technology companies raise investment and pursue exits.

Perhaps the most fundamental rule is that an investor should have a deep understanding of your specific sector and its particular trends, technologies and pain points. For example, if you’re a deeptech startup, you’ll likely benefit more from someone familiar with technical scaling challenges than a purely financial backer. An investor with specific experience in your space will be able to help you navigate next steps and avoid common pitfalls. 

“Investors who have helped companies grow from early stage through to international scale can offer valuable guidance on hiring, operations, and market entry,” says Jonathan Simnett. “Alongside this, a strong, managed network within your field can unlock access to customers, relevant partners and talent, and future funding. Remember that prominent, well-respected investors can make it easier to raise future rounds, attract talent, and gain media attention.” 

Are you aiming to have your company acquired in the foreseeable future, or is sustained independence your goal? Is aggressive scaling or disciplined revenue generation your strategy? Whatever your plan, it’s important that you and your potential investor align. Bear in mind that different investors specialise in different phases, with early-stage investors tending to tolerate more risk and later-stage investors tending to focus on scaling and financial performance.

“Chances are a tech startup or scaleup will want to choose an investor not just for capital, but for their ability to support sustainable growth and long-term strategic success – for instance, the domination of a technology category,” says Jonatham Simnett. “In this respect, the most important factor is strategic alignment. Investors must share your vision, whether that’s product innovation, profitability, and/or the penetration of new geographical territories. Misalignment here can create destructive friction and slow progress going forward.”

Related to the previous point, another thing to verify is whether an investor tends to reinvest in later rounds or prefers to cash out early. This is where open and honest communication is essential, and you’ll also want to research the investor’s past behaviour – check to see if companies in their portfolio raised subsequent rounds and if the investor participated.

“Your due diligence should include careful assessment of the investor’s ability to provide follow-on capital, ensuring continued support through multiple growth stages,” says Jonatham Simnett. “Their stance on growth versus profitability must match your strategy, especially if you plan to prioritise expansion over short-term returns.”

As a company owner, you need to consider how much control you are willing to share, and under what conditions. It’s important to have clarity from the outset about their board structure and expectations around decision making and veto rights. Does their framework allow you to remain agile and make rapid decisions, or will their bureaucratic processes potentially slow you down? 

Personal chemistry is also important, given that your partnership will inevitably come under pressure over the course of their involvement in your business. If your communications already feel strained during the initial fundraising phase, it may not bode well for your future relationship.

“Don’t overlook deal terms, including equity, control, and exit conditions, and the typical time a fund holds investments,” says Jonathan Simnett. “This where it’s important to work with an experienced lawyer to get the structure right for you.

“Understanding the investor’s governance style, their level of involvement or passivity, is also vital. Will you work directly with operationally experienced partners, or will you get landed with junior observers? Checking their reputation and working style through founder references can reveal how supportive they really are during challenges, and your potential investor should be happy to put you in contact with current and historical investments.”

Are you currently planning to secure new growth funding for your business? Please drop Jonathan an email to discuss your goals and learn how we can leverage our network of private equity, venture capitalists and corporate investors in Asia, Europe and North America to find the right backers for you. 

You can also download our free M&A market reports to catch up with the latest investment and acquisition trends in major tech sectors such as Artificial Intelligence, Digital Commerce and Enterprise Software. Each report includes valuation metrics, landmark deals and commentary by our specialist sector principals, so don’t forget to subscribe to ensure you’re notified whenever our newest reports are published.

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