Once you’ve decided to take your business from conception to reality, you know it’s time to start looking for funding.
You start lining up sales call after sales call, and start meeting with investors in person, and things are going great. You even have a few investors who are thoroughly interested in working with you.
Awesome! Great job!
However, before you grab their check and head to the bank, there are some things you should do before handing over the contract and signing on the dotted line.
Ensure Your Investor Can Help You Grow
Money’s important, but when choosing an investor to work with, you want to also consider who has the experience and knowledge to help you and your business grow. Not only that, but you want someone who will inspire you to think outside the box, by asking the right questions and supporting you through every one of your new and exciting ideas. In fact, I’d recommend that you find someone who has a skill set that can help take your business to the next level!
Find Investors with Integrity and Whose Vision Aligns with Yours
If you have a product or service that is truly unique and is proving to take the market by storm, you will be able to find investors. The thing is, you don’t just want any investor. You want people who have visions that align with what yours are for your business.
This business is your baby, treat it that way by doing some serious digging before agreeing to work with an investor.
My guest on Success Unfiltered, Jon Carder, shared the story of selling his second business, Client Shop. At the tail end, before he was going to sell the company, he had been able to raise a little bit more money. However, one of the angel investors that he ended up working with became very difficult when Jon decided to sell the company.
He was asking for more than he was legally entitled to. But, he refused to sign the sale documents unless Jon gave him more than he had originally agreed to.
To keep the deal moving along, Jon went ahead and said YES, giving this investor more money.
But, then when Jon started his next company, there was some interest from the same gentleman to invest, and he told him NO. That he would never be able to invest in any of his companies ever again because of the way he had previously handled himself.
Jon believes in extending some trust, but if that trust is broken, he’s going to say NO in the future. When there’s money on the table, the way people behave is often very telling of their character.
Let this sink in… Jon was willing to leave a couple thousand dollars sitting on the table because the investor was not playing ethically or morally.
If you’re at a point in your business where you need to start asking for money, here are two red flags of bad investors:
- Fairness – Do the investors seem greedy in their ask? Are they going to look out for everyone on the team, including the other investors. You want someone who plays well as a team.
- Supportive – Jon recommends that you do reference checks on anyone that you’re going to work with. You want to identify any other failed companies that the investor invested in, and determine what happened when things went horribly wrong. Did he or she stick by and try to support everyone, or did they turn nasty and only look out for themselves?
The Difference Between Professional and Inexperienced Investors
The professional investor is calm, even in the stormy weather of a troubled business. They’re the investors that are like ducks, they remain calm on the surface but paddle like hell underneath.
The pros know they must take care of the team! They check to make sure that the team is properly compensated, that the CEO and the executive team have enough equity. They want the best possible outcome for everyone, not just themselves.
The inexperienced investor is typically only looking out for themselves and trying to gain as much equity as possible.
Be Sure Fairness is in Play
I’ve met a lot of investors where fairness is not their main goal. It’s all about what’s in it for them. They feel like money is the power and that power trumps anything.
You want to look for those investors who are willing to take care of the team because as you need to raise more and more money, you are essentially diluting yourself, through each round of funding. You could end up as a two percent investor in your own company! They could easily fire you and leave you with nothing. That’s how so many of these stories of entrepreneurs ending up with nothing, happen.
You MUST do your due diligence to make sure you are choosing the right people, it is the biggest thing I wish I had done with my last company, FITzee Foods.
For me, with FITzee Foods, I had to close the company in March of 2017. It’s not the fact that I didn’t try, I just wasn’t able to raise the funds that we needed to grow in such a competitive marketplace. Within about a 24 month period, companies like Plated, Blue Apron, Sun Basket, and every single meal kit company on earth just sprouted from every single place. There were Facebook ads going, people giving away a free week of food. We were underfunded. I couldn’t compete with those companies.
It’s not that we didn’t have a great product or I didn’t try everything. There are just some things that are out of our control.
In Conclusion
You have to have money in order to compete with your competitors. If you need to raise money to operate, like some of my guests on Success Unfiltered have mentioned, make sure you’re always raising money. That process should never stop.
Ensure you always have money in your bank account so that you are able to keep up with your competition, never have $12k in overdraft fees like Jon had, and be able to provide the best products and services to your clients.
Have you ever had to use investors to fund your company? Tell me in the comments!
