As a small business owner, the idea of embracing investors and getting a big check can seem like a complete win for you and your business. In fact, when SMEs want to expand their business, or are going through a financial crisis, they hardly examine their options before they take on investors.
With a $50,000 dollar investment fund, SMEs could give as much as a 30% stake in the company, and before the money is spent, the investor and the founders are already at loggerheads as to how to make profit.
Early and late disputes show the importance of having an intelligent governance structure, such as a board, and outlining the rights an investor has in company decisions. When you decide to add an investor, be sure to clearly understand how much of a stake they’ll have in your company.
Read Also: What is Your Job as a Startup Founder?
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First, network
Every small business or startup needs working capital, and that means finding good investors. It is not always about finding who to work with, it is about building smart relationships. It’s important to remember that investors are investing in you as much as they’re investing in the company.
Before you take on an investor for your small business, you should first build and maintain a network. Oftentimes, we find good investors from our network, from family, from friends. It could also be people from secondary school, your university or professional associations.
When investors get in to your company, they are going to be there a while, and they will be there to help you – and guide you – through the difficult times and stages of the business’ growth. But, those kind of relationships take a while to develop.
Talk to your mentor
You can have a series of conversations with your mentor who can give you advice on your journey. Your mentor may be more helpful than getting an investment manager or lawyer.
Understand the agreement
Talking to an investor usually seems it is going to be an easy ride. But, in truth, there are a lot of legal clauses you need to understand and negotiate before you finalise plans to take on an investor.
When on the negotiating roundtable, you won’t get all of these clauses completely in your favour, nor should you. But understanding the implications of the clauses, instead of just signing whatever is put in front of you can be the difference between an investor option that leaves you a multi-millionaire and one that leaves you looking for another job.
While crowdfunding platforms may also be a good way to raise capital, angel investors and venture capitalists are more expensive and tend to be more for technology-based companies than Main Street businesses.
investors provide guidance and feedback, you need them…only at the right time.
