[Article by guest author]
For entrepreneurs, finding investors for their startup can feel like the ultimate quest, often leading them to dedicate more effort securing funds than developing their actual business and innovating the exceptional ideas, products, and services that drive it. After all, it’s said, “You need money to generate money,” correct?
Incorrect—at least when it comes to acquiring the wrong type of funding.
Shortly after I launched Geneca, we managed to secure just $394,000 from friends and family. Although it may seem like a substantial sum in the technology startup realm, it really isn’t. We lacked “real” business investors contributing “real” capital. And that was a deliberate decision.
The significance of selecting the right business investors
Why does this matter? Because you want to avoid getting involved with the wrong investors—or their funds.
Your startup is akin to your child. It represents a part of who you are. Therefore, it’s crucial to ensure that your investors align with your overall objectives, because…
1. The wrong investors distort your success perspective.
Some investors have a short-term mindset, looking for rapid returns on their investments, often seeking immediate and substantial payoffs.
Consider the scenario when a business goes public. At that point, it is assessed based on quarterly earnings and market capitalization. Delivering on earnings predictions and fulfilling investor expectations each cycle becomes paramount.
Now imagine you conceive an innovative idea that would necessitate considerable investment over the next three quarters but would potentially allow your company to generate double the revenue three years down the line. You wouldn’t be able to pursue that opportunity because the dynamics induced by selecting short-term oriented investors would inhibit you.
If you, propelled by urgency or a lack of strategic vision, align with investors fixated on immediate returns while your aim is long-term growth, expect ongoing conflicts as your objectives will never synchronize.
2. The wrong business investors insist on an inappropriate level of involvement.
It’s a given that anyone writing a check believes they deserve a say in affairs, and for some, extensive input may be beneficial. Perhaps you desire not only capital but also the ongoing experience, insights, and networks of your investors.
However, one primary motive for many entrepreneurs is to take charge and direct their own ventures. Most prefer limited input from their investors.
If you seek substantial involvement, that’s fantastic—pursue investors who crave a hands-on approach. If not, ensure you attract investors who are content to take a backseat and allow you to navigate the course. Misaligned goals and expectations will inevitably damage the relationship—and eventually impact your business.
3. The wrong investors pursue inappropriate long-term goals.
Perhaps your intention is to scale your business to a specific size and then sell it. Many investors share this objective as their equity can quickly be exchanged for cash.
Yet, cashing out may not align with your ambitions. It certainly wasn’t mine. You might wish to establish a profitable and sustainable enterprise that clients appreciate and employees enjoy working for. If that’s your aspiration, it’s vital your investors share this vision and are committed for the long run.
Avoid making a hasty or desperate choice when selecting investors. Be strategic. Understand your goals. And comprehend theirs.
