Does Your Business Need Money?
Looking for money? Before you answer that-BE CAREFUL what you wish for.
Financing your company with seed money from angel investors or investment funds from a Venture Capitalist has its merit; but only when it's right for you and your business model.
Very often they bring misery, failure and strife.
I in no way want to disparage VC's or Angel Investors-they're typically very astute people bringing experience and money to the table.
However they also bring with them some motivations which are not necessarily in line with yours as the business owner.
Investors want to know only a few things at the end of the day: what the risks are; what you will do to mitigate those risks; when and under what circumstances they'll get their investment returned; and what they have to exchange to protect their investment and extract a profit.
Many investors will have a 5 year horizon and have a need to control-at least partially-managements input, direction and activities.
The higher the perceived risk, the more investors expect in return.
Unfortunately the relationship holds an inherent conflict of interest.
The entrepreneur wants her company to survive the long term-the investor wants to realize a profit in a relatively short time frame.
In order to achieve their goals, investors push for strategies they feel will work.
This means beefing up the perceived value quickly and these strategic decisions can have negative long term consequences-especially after their expertise is gone and you're left holding what's left.
At times, investors will bank-roll their growth strategy and if it doesn't work out according to their milestones-they walk away as quickly as they came.
One way to improve margins is to cut expenses.
Managing expenses is very important and responsible use of money and credit is mandatory but I contend no company has ever become highly profitable by just cutting expenses.
Before you approach investors, undergo a very honest assessment of your own margins, cut where YOU think could use some tweaking and most importantly don't anger the people in your firm who make the difference.
Like I said earlier-investors are not bad people.
They should bring expertise to the table and they could bring connections that will be opportunities for growth.
The crux of the issue is to make sure the shoe fits.
How do you do this? Ensure you work well before you work together.
Be very aware of how they're approaching you, how they're treating you and what they're asking for.
Ask to talk to other company heads they've invested in to understand their legacy.
It's absolutely essential to remember that the real test of relationships is not in the courtship or the good times but how it will work when things don't go so well.
If you can get to understand how they operate when stressed or pushed against a wall and it fits your framework, then you've gone a long way in increasing your chances of success.
I believe you need be very honest and upfront with each other and if it's not constructive-you've got a problem.
Be aware also when you're delivering a message-there are two aspects that are critical: the message itself and the delivery.
Focus on the problem and not the people.
When you deliver a message it's about how you make them feel.
Financing your company with seed money from angel investors or investment funds from a Venture Capitalist has its merit; but only when it's right for you and your business model.
Very often they bring misery, failure and strife.
I in no way want to disparage VC's or Angel Investors-they're typically very astute people bringing experience and money to the table.
However they also bring with them some motivations which are not necessarily in line with yours as the business owner.
Investors want to know only a few things at the end of the day: what the risks are; what you will do to mitigate those risks; when and under what circumstances they'll get their investment returned; and what they have to exchange to protect their investment and extract a profit.
Many investors will have a 5 year horizon and have a need to control-at least partially-managements input, direction and activities.
The higher the perceived risk, the more investors expect in return.
Unfortunately the relationship holds an inherent conflict of interest.
The entrepreneur wants her company to survive the long term-the investor wants to realize a profit in a relatively short time frame.
In order to achieve their goals, investors push for strategies they feel will work.
This means beefing up the perceived value quickly and these strategic decisions can have negative long term consequences-especially after their expertise is gone and you're left holding what's left.
At times, investors will bank-roll their growth strategy and if it doesn't work out according to their milestones-they walk away as quickly as they came.
One way to improve margins is to cut expenses.
Managing expenses is very important and responsible use of money and credit is mandatory but I contend no company has ever become highly profitable by just cutting expenses.
Before you approach investors, undergo a very honest assessment of your own margins, cut where YOU think could use some tweaking and most importantly don't anger the people in your firm who make the difference.
Like I said earlier-investors are not bad people.
They should bring expertise to the table and they could bring connections that will be opportunities for growth.
The crux of the issue is to make sure the shoe fits.
How do you do this? Ensure you work well before you work together.
Be very aware of how they're approaching you, how they're treating you and what they're asking for.
Ask to talk to other company heads they've invested in to understand their legacy.
It's absolutely essential to remember that the real test of relationships is not in the courtship or the good times but how it will work when things don't go so well.
If you can get to understand how they operate when stressed or pushed against a wall and it fits your framework, then you've gone a long way in increasing your chances of success.
I believe you need be very honest and upfront with each other and if it's not constructive-you've got a problem.
Be aware also when you're delivering a message-there are two aspects that are critical: the message itself and the delivery.
Focus on the problem and not the people.
When you deliver a message it's about how you make them feel.
