How to choose the right investor for your Startup

Pick the wrong investor, and they can slow you down or even hurt your startup’s chances of success. I’ve seen both sides. Here’s what I’ve learned about how to choose the right investor – and how to avoid the wrong one.

1. It’s not just about the money

A founder I know once said, “Investors promise a lot, but at the end of the day, all they really give you is money.” And while that may be partially true, the right investors bring so much more to the table:

• Industry expertise – Do they understand your market and customers?

• Network & connections – Can they introduce you to key partners, talent, customers, or even future investors?

• Fundraising guidance – Will they help with future rounds and exits?

• Operational support – Can they help with hiring, scaling, or strategy?

2. Do your homework – research their reputation 

Just like investors do due diligence on you, founders need to do investor due diligence to.

Here’s how to assess potential investors properly:

• Talk to other founders – Ask about their experiences with this investor. If they hesitate or give vague answers, dig deeper.
• Check their portfolio – Have they invested in startups like yours? If not, they might not understand your business model.
• Follow-on funding history – Do they reinvest in later rounds, or do they cash out early?
• Watch for red flags – Did they have conflicts with founders or pushed for fast exits instead of long-term growth? 

Choosing startup investors without research is one of the most common, and costly, mistakes founders make.

3. Trust your instincts – a bad investor can kill a Startup

Last year, in one of the startups I invested in, we were looking for another investor. The CEO had a bad feeling about one of the potential backers, something felt off. But we went with them anyway.

It turned out to be a catastrophe. The investor worked against the management team, and that kind of conflict can completely destroy a company. The startup went bankrupt.

Moral of the story? Trust your instincts. If something feels off, don’t ignore it. If you have a choice, choose wisely. 

4. Understand the investment terms – know what you’re signing

While most investors have good intentions, some terms can have long-term implications that you might not fully realise at first. Read everything carefully, ask the right questions, and negotiate where needed.

Key terms to pay attention to:

• Equity dilution – How much are you really giving up? A reasonable dilution per round is around 20%. If it’s much higher, you could lose control of your company too soon.

• Liquidation preferences – If an investor asks for a 3x liquidation preference, it means they take three times their investment before founders can see anything. This can cause serious problems down the line. Always try to negotiate this down to 1x to keep things fair. 

• Voting rights & veto power – Will they be involved in major decisions? Will they block important decisions and slow you down? Ensure that they guide, not control every decision.

• Exit expectations – Are they pushing for an IPO or acquisition sooner than you’d like? Make sure their vision aligns with yours.

A high valuation isn’t always a good thing if it comes with bad terms. Take the time to ensure you’re on the same page before signing.

5. Test the relationship before you sign

Would you go into business with someone you’ve never met before? Probably not. So why would you take investment from someone you don’t really know?

Before signing, make sure they’re the right fit:

• Have multiple conversations – See how they think, communicate, and approach decision-making. Talk about life in general, not just work. Get a sense of their perspective.

• Ask how they’ve handled tough situations –  See how they support startups during crises.

• Make sure your timelines align – Do their expectations match your growth plans?

An investor isn’t just writing a cheque, they’ll be involved in key decisions that affect your startup’s future. You want someone who shares your vision, not just your bank account.

Final Thoughts

Choose an investor, not just money.

The right investor won’t just fund you, they’ll help you build, grow, and succeed. But the wrong investor? They can slow you down or even sink your company.

• Do your research. Talk to other founders and check investor history.
• Watch for red flags and bad terms, misaligned expectations, or controlling investors.
• Test the relationship before committing.

Many founders only realise too late that they picked the wrong investor. Don’t let that be you. Take the time to ask the right questions, trust your gut, and find an investor who truly supports your vision.

Laurent Decrue
Co-Founder & Co-CEO / CFO at Holycode

Laurent is a serial entrepreneur, investor, and board member with over 20 years of experience, building and scaling companies like Deindeal, MOVU, Bexio, and Holycode. He’s passionate about helping startups nail product-market fit and build a culture that can scale all the way to IPO. When he’s not busy with startups, he’s a dedicated dad and loves doing sports.