Things to Note While Taking Any outside Investment

Things to Note While Taking Any Outside Investment

Introduction

It is an important task to find an investment, but a more important deed lies in protecting its interests. Because, if you do not maintain and move around those start-up ideas initially decided upon, then at any given time, the funds may fail.

As an entrepreneur, you are entrusted to work on things that will protect your idea. One of them is to know what is waiting for you on the other side of the investment shore. Knowing this isn’t only critical, but it is what will make or mar your start-up idea.

Time Line Mismatch 

Time Line Mismatch 

When a VC invests in a start-up idea, he is usually looking for returns within the project cycle. I mean, if you take a closer look at how investments work, then you would know that they are time-bound; which means, they look for returns every two years for whatever they have invested and are looking to sell the company big time or go public with it. At the end of everything, their goal is to make money and the returns you make for them is the only way they can do so.

Looking for a small time investment, therefore, has less hassle. Not only you can claim your ownership value, but also not be a puppet under someone who has to do something because someone had “thought so.”

Thought Process

Thought Process

Consider investors to be like sharks. They will come to you in one way or the other. When they do, it’s important to understand what their primary aim is all about. Some investors are looking to get capital plus interest in a stipulated time. They don’t really care how you do it; all they want is their financial returns on investment. Such people, institutions can be a real pain as they don’t align themselves with your objectives and goals.

As a budding entrepreneur, your journey is going to be unique in a way that motivates you every single day. You need to find an investor that can align with your thought process or understand what you seek and how you plan to do it. Flexibility like this, will not just allow you to work on your own terms, but also will help you leverage your small-time idea of making it big.

Mismatch in Skill

Mismatch in Skill

When VCs and founders sit around a table to discuss financial credibility, it’s all about financial analysis and operational capabilities. VCs or people who are capable of investing often are not subject matter experts; in this case, your start-up idea may make no sense to them. They are there to discuss trade because of goodwill, interesting idea, innovation factor, good potential energy, and other reasons. Most of the times, these people seem to add negative value then make sense.

As entrepreneurs, its critical to balance your temper and maintain calm around such situations. Understand what the objectives are, align with the common preferences you guys share and see if you can work something around it.

Eduardo effect! a.k.a Type of Liquidation

Eduardo effect! a.k.a Type of Liquidation

Often, when the company sees growth, or you seek more investment, there is a need to evaluate who gets how much profit. At the end of the day, investors are investing to make more money than to earn just goodwill. Everything in terms of liquidation, shares, assets should be on papers and official documents. When a company would be listed, or a new investor comes in, whose shares get liquidated, and how much and is that person OK with it, are important answers to seek.

Hire a lawyer and get the papers checked over again to see what the loopholes in it are. Whatever the small-time or the big-time business you are thinking of, it has to be made official. These official documents will give every investor, however small or big they are, the recognition and shares they deserve. This is also one of the most ethical steps that have to be followed in order to run a smooth business.

Careful with an Investment Protection

Careful with an Investment Protection

If your small-time business is now turning heads and attracting bigger investors, their investing would require you to sign shares on their names. They would ask for anti-dilution protection for their shares. At this point, it is important that you know your options well. If you don’t, hire someone trusted who would know about these things. You should be pushing for something called a partial ratchet. Here, the outside investors would get to buy additional shares at a price that is closer to the actual market price of the shares.

Conclusion

Size doesn’t matter, but will do! In it, we mean, no matter how large or small your business idea is, you as its captain needs to protect it. The blog describes certain things you need to know when you are bound to receive investments. Adhere to these a bit more introspectively to know what could make sense to you in what way.

 

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