“Often, people or companies are very influenced by the need for capital, and therefore don’t take the time to consider the fact that investors’ interests may not be aligned with that of the managements’ or founders of the business” said Ingo Mueller. Finding the right investors is not only about getting the right amount of investment, but also matching the investment period that management is expecting, and the investors are providing. Ingo Mueller is the CEO of Capital Fusion Group, a financial advisory company in Vancouver.
“When the investor has a long term focus and the management has a short term focus, the problem may not be significant since investors are usually flexible enough to shorten the investment horizon as long as the investor’s financial return requirement is satisfied. However, if management has a long term investment horizon and the investor has a short term horizon, then the problem of aligning interests will be more significant. Therefore it is important for both management and potential investors to sit down to properly understand each other’s respective needs and objectives to avoid future problems” explained Ingo.
However, it is also important to seek and understand the different type of investors available since each type of investors has a different investment profile. For example, there are venture capital investors, private equity investors, and institutional investors or hedge funds. Venture capital investors usually have a long term view of the business and seek to add value over time, however, seek aggressive returns. However, private equity investors usually seek a company that they can work with for a pro-longed period of time and then seek either public exit or trade sell. Usually these investors participate like to participate at a more advanced stage of a company’s business. Finally, hedge funds often seek nearer term liquidity and therefore have a different investment profile. Understanding the various type of investors will help management to identify and work with suitable investors whose interests align with those of management.