How to Determine Your Ideal Investor Type

How to Determine Your Ideal Investor Type
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There’s no one-size-fits all when it comes to the “perfect investor”, but there are ways you can narrow down the perfect investor for your organization. This article will discuss some of the different types of investors out there and help you create an ideal profile you can use to find new investors. 

Investor Alignment

Investors with a strong understanding of your company and your industry are intrinsically well aligned. For example, you may find that investors who hold your peers already have a good understanding of your sector and may be willing to invest in your business. Conversely, it may be an uphill battle working with an investor who doesn’t normally invest in your sector. These alignment factors can help you determine if a prospective investor might be a good fit:

Investment in Peers

Investors who already hold your peers are a prime example of investors who likely understand the specific characteristics and nuances of your industry, and what it takes to be a successful player within it. They are already aware of the risks, benefits, and will generally have a good idea of what to expect. Furthermore, by already having a position in one of your peers, they are more likely to be interested in taking a meeting with you - if not for investment purposes, then to better understand the competitive dynamics of the sector they have exposure to. It is easy to find investors with positions in your peers with Irwin’s robust targeting capabilities.  

Understanding of Core Business Model

Similar to the above, investors who have an understanding of your business model (ie. the mechanics behind your revenue generation, cost structure and unit economics) and believe in its ability to be successful in the long-run are more likely to be interested in investing in your company - ideally with the intent to partner long-term.

Market Capitalization Focus

Your ideal investor should also be comfortable investing in companies within your market capitalization range. This is important because, all else equal, it will be much more challenging for a small cap company to take on an investor whose portfolio consists of primarily large or mega-cap companies. While you shouldn’t rule out investors who invest in market caps outside your range, you are more likely to make strong connections with investors with known reputations investing in a similar market cap range. 

Additionally, you may want to consider prioritizing investors based on how their average position sizes compare against your daily trading volume. For example, if your stock is thinly traded (ie. low average daily volume) and an investor that invests in companies around your size likes to take large, concentrated positions within the stocks in their portfolio, they may run into challenges in building a position in your stock due to the low volume and may not be an ideal fit despite the fact that they invest in companies around the same market capitalization.  

Learn how Irwin’s investor targeting software makes it easy to browse and filter investors by average investment size and preferred market cap. 

Investor Characteristics

In addition to searching for investors that align with the core attributes specific to your company, there are certain characteristics that you might intentionally seek out in investors. Some factors to consider:

Investor Style

An investor’s style plays an important role in how they approach their investment decision making process. Understanding what the different investor styles entail and how your business screens within them is a critical step in determining your ideal investor type. A prime example of this is growth vs. value investors - by determining where your business sits on the growth-value spectrum you can more accurately pinpoint investors whose style is aligned with your strategy. 

Strategy / Mandate

Another key attribute of investors is the mandate or strategy that they are required to follow. An investors’ mandate will often dictate the types of companies and/or sectors that they are allowed to invest in. Therefore, specifically targeting investors that have mandates or strategies that align well with your business and the industry it operates within will allow you to further pin down the types of investors you want to be in your stock long-term. 

For example, if you are a high-growth software company and an investor you are researching runs an aggressive growth fund, there is a higher likelihood that you could be a good fit in their portfolio compared to an investor who runs an income/dividend fund but invests in companies within your sector and cap size. 

Turnover

A key area of focus when determining your ideal investor type is how long they tend to hold their positions. While frequent trading may be expected and acceptable in certain circumstances, most businesses tend to prefer developing relationships with investors that are likely to hold stock for long time periods. Irwin’s high quality holdings data can help you refine your investor targeting with more accurate insights into investor holding patterns. 

Geography

When determining your ideal investor type, it is important to keep in mind that some have preferences for or are mandated to invest within certain geographic areas. For example, some investors have a preference for investing within their own country and may perceive greater risk for companies operating in certain geographic regions. Others take an international approach to investing, or are mandated to invest in asset classes such as emerging markets. You can usually determine an investor’s preferred geography based on their holdings, or use Irwin’s global database to target investors by geography.

Your Existing Shareholders

Lastly, it is important to consider how a new investor might fit into your current shareholder base. For example, if your current shareholder base is mostly retail investors and small family offices, taking on a large institutional investor may affect your existing shareholder targeting and communication efforts while also potentially changing the perception of your company in the eyes of your current shareholders. On the other hand, you can leverage your current shareholders in a positive way to narrow down the reasons they like your stock by conducting investor outreach campaigns to formally or informally get feedback from investors - and then use that to inform future outreach efforts. 

Putting it All Together

By determining your necessary areas of alignment, desired investor attributes, and analyzing the qualities of your existing shareholders, you can craft an archetype of what you would want in an ideal investor. This archetype should be central to your investor targeting efforts, as this is the type of investor you should be seeking out. 

Our investor targeting software can help you find investors matching your ideal investor profile by filtering out investors who don’t match your preferences, and showing you investors who are aligned with your business using advanced differentiated data. Irwin’s investor targeting software is the easiest way to discover compatible investors around the world. 

Further reading: The Art and Science of Investor Targeting

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