8 Reasons You Should Not Take An Investor’s Money
It sounds insane to refuse an investment, especially when it’s an enticing one and your business is desperately in need of money. But growing a successful business isn’t all about just collecting every dollar that’s presented to you as an investment.
You need to be calculative as a smart entrepreneur, know what any investment could cost you in the short and long run, and take the right steps to ensure walking away or going with the investment is the best decision you’ve made.
If you’re wondering why anyone at all should choose to walk away from an investment offer made by venture capitalists, angel investors, or even a member of your family, here are 8 reasons to do so:
1). You Lose Complete Freedom:
When you take investors money, you become accountable to them for everything that happens in your organisation. Whether the accountability process is a mutually beneficial or frustrating one, almost any decision you may have to make would need to first be run by your investors before you can take action on them.
A way to mitigate this is to make the investor understand upfront that you will retain complete or a great control over the decision-making process and have a contract prepared and signed to that effect. Most investors would refuse this option, but getting it is the best way to make receiving the investment more convenient.
2). They May Be Bringing Nothing Else To The Table:
It’s recommended to only take on investors that have a vast business experience and can help advise on the best direction the company should take.
Taking on an investor is like getting married. You’d probably be stuck with that person forever, and if you’re going to go through with it, you’d need to ensure you are both compatible and can positively influence each other’s success in many ways.
That is exactly how taking on an investor is. It’s beyond the money and more about the relationship.
It’s always best to bring on an investor with experience in the industry your business operates in. But even if they have no experience in that, their general business experience should be able to give you great insights on how operations can be better streamlined for growth.
3). Their Expectations May Be Too High:
People always have high expectations of anything they put their money into, especially when they’re making an investment in a business that was not founded by them. But while setting expectations is a key driver for growth, unreasonable expectations should raise eyebrows immediately.
Some people want to invest in your business with the hopes that they can make a 100% profit in the first year. If you see such people, simply walk away.
Most businesses take 2 to 3 years before they hit profitability, and so, a reasonable growth plan that makes provisions for shortfalls should not be unrealistically changed because you desperately want the investor’s money.
As earlier said, move on from any investor who presents you with unrealistic expectations for whatever amount they intend to invest in your business.
4). They Could Make You Lose Focus:
When investors come in, they always have a grand master plan to turn the company’s financial front around in the shortest possible time, and to achieve this, some of them make an attempt to change the organisation goals.
When this happens, you lose the core purpose of your business and find yourself on an entirely different path that’s off your dreams.
First, it’s key to know that pivoting is essential for survival, but sometimes changing the course of the business is not the best option for it, especially if it has created a significant impact on its local market.
If change must occur, then it should be revenue-oriented and not a complete rework of your company’s reason for existence. But if your company itself appears to be going nowhere, a pivot may be the best thing to happen to it.
5). You Risk Losing Your Company Some Day:
Organisations are mostly run like governments, and so, there’s always a lot of politicking going on in various companies. While most people believe it is impossible for them to lose their company, it is imperative for them to know that even Steve Jobs, the founder of Apple, was once fired from the same company he founded and was kept away for many years.
If your prospective investors sound overly ambitious and already show signs of wanting to take control of everything that happens before even putting in a penny into your business, then they may be bad for you, since it would only be a matter of time before they push you out of the company.
6). They Have A History Of Frustrating Their Partners:
Always do a due diligence check on anyone you intend to bring onboard your company as an investor. Research them carefully, check their profile on public domains, talk to people they have previously worked with or invested in, and find out as much information as you can about the investors.
It is important to ensure that the people you’re bringing onboard your company are not individuals who have a history of frustrating their partners.
When frustration sets in, focus is derailed, and growth becomes difficult.
No matter the amount of money an investor wants to put into your business, if they have a history of frustrating their business partners, flee and don’t look back. It will never be worth it in the end.
7). You May Have Poor Negotiation Power In Shares Allotment:
When you take on an investment without having the opportunity to have grown the business to a reasonable point, your negotiation power on share distribution becomes difficult.
The smart thing to do is always to first grow your business to a certain degree before you bring on interested investors.
When you do this, you’d only get to give away a small part of your business, rather than losing so much of it from the onset.
8). You Probably Don’t Need The Money:
If you don’t truly need an investment and investors insist, don’t take the money. Why give out any part of your business if it can do great without investor’s money?
It may be enticing to know there are a couple million dollars of investors money in your company’s bank account as backup money for many other things, but it’s entirely not worth it if your business’ growth trajectory is an already impressive and very profitable one that can enable you to expand and grow very fast.
If you don’t need the money investors are offering, simply don’t take it.
What are your thoughts on these 8 reasons you should not take an investor’s money? Let me know by leaving a comment below.