It’s important to recognize that the first investor in your company is yourself, says Denise Devine, co-founder, CAO and CFO of RTM Vital Signs.

“That's very important for getting follow-on investors,” she says. “Investors like to know that you have skin in the game — either sweat equity or actual direct investment. From there, there’s usually a friends and family round to get things started.”

She says the nature of relationships makes transparent, candid conversation with friends and family prudent ahead of accepting their investments.

“Because often it is the first private investment that they’ve ever made, and they have to understand that it could be a long time before they get a return,” she says. “They’re not going to have very much say in the business. So it’s important — if you’re getting the sense that there would be an issue with a personal relationship — that you certainly don’t want to accept their money.”

At the Dealmakers Conference earlier this year in Philadelphia, Devine talked about the stages of capital raising and what entrepreneurs should look for — and look out for — at each.

Cash is king?

After the family and friends round, most entrepreneurs turn to angel investors for their next funding round.

“There are some very deep-pocketed individual angels,” she says. “They’re very hard to find. You find them through personal introductions.”

Easier to identify are angel groups, which are more structured. She says when doing due diligence on angel investors, while cash might presumably be king, it’s not the only reason to work with angel groups.

“Obviously, the cash is very important, but we would like to find people who can add some value to the business, as well. That’s No. 1,” she says. “No. 2 is we look for people who are sophisticated private investors, who have seen other investments and can weather the storm. They’re not going to panic if something goes wrong. They’re not going to panic if the market changes and you have to pivot from your strategy.”

The go-public track

Past the angel level into the institutional or series A round, Devine says openness and transparency with investors are critical. At this stage, companies and entrepreneurs should be able to have a dialogue regarding the strategy of the company, specifically the exit strategy, to ensure that investors are aligned with management.

“If you’re trying to grow the company to go public, that’s certainly one track and a whole set of decisions,” Devine says. “If you’re growing a company to be acquired by another company, that’s a whole other set of decisions and it’s a whole other track that you’re on. Not to say that things couldn’t change and you have to change your strategy, but I think it’s very important to be transparent and clear and in dialogue.”

She says as a due diligence point during the angel round, the last thing you need to do when you’re busy growing a company is babysit your investors.

“You want to make sure that you communicate with them but that they'’e not trying to run your business,” she says.

With a seat on two public company boards, Devine says she’s seen first-hand that it’s a huge difference operating as a private company versus a public company.

“The costs alone are quite significant,” she says. “Even though there’s an SEC emerging growth company status out there, which gives you a reprieve for a couple of years, you have to start preparing on day one to get all your compliance ducks in a row to get ready for Dodd-Frank and Sarbanes-Oxley. It requires a lot of deliberate effort and cash and resources to gear up.”