When you first came up with your business idea, you wanted to build a solution to a particular problem by offering a product or service that would make the world a better place in some way. You were focused on your vision, and passionate about financing and raising the capital you needed to make it happen. Chances are, you weren’t thinking about how to make your shareholders and investors rich!
Over the course of my career, I’ve seen many well-meaning business owners lose sight of their original goals and plans by taking capital from the wrong investors. Conventional wisdom would have you believe that investors want your business to be successful because it’s in their best interests, but what does success actually mean? Do you and your investors define success in the same way? Are their interests aligned with your long-term goals and strategies? Keeping investors happy can sometimes work to the detriment of your customers’ and employees’ best interests, which eats into your business’s authenticity and original intent.
To illustrate this point, with my own clients, I often use the analogy of a car. Your customers are the roads and infrastructure for it to drive on, your employees are the engine and mechanical parts, and the investor is the mechanic who fixes your car. All three are important, but some are more important than others. My personal belief is that your customers and patrons should always come first, because without roads and proper infrastructure, there’s no reason for you to own the car in the first place. Employees come in at a very close second, because when you invest in the right engine and parts, your car will run smoothly for years. As for your investors, would you hold onto a mechanic who starts to suggest increasingly expensive and unnecessary upgrades to your vehicle, so they can line their own pockets? Your investors are there to provide the resources to ensure that your business is road-ready and in working order, so that you can reach the destination that you had originally envisioned.
Ensuring that your stakeholders support your long-term goals and strategies is a key part of doing your due diligence on potential investors. Friends and family in seed rounds are typically the friendliest investors because they trust the entrepreneur, don’t impose much scrutiny and are usually aligned with the owner’s original vision. While it’s unrealistic to expect the same level of trust in subsequent rounds of capital raising, it’s important to ensure that any stakeholder you bring on board won’t interfere with the original goal of your business and isn’t stuck in short-term thinking. That way, you can keep your customers and employees happy and retain their loyalty…after all, they’re your biggest stakeholders!
Ideally, your investors are there to give you access to the resources you need in order to carry out your long-term strategies. They should provide you with operational assistance and contacts in your particular market. If you’ve built a successful business, customers love your product or service and your employees are happy, then you need to find investors who will accommodate your way of doing business. Make sure they don’t impact what you define as success; otherwise, no amount of capital is worth destroying the integrity of the business that you’ve worked so hard to create.
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Takeaways:
Feel like you’re in over your head? Give us a call and we can help you navigate your investor relations, as well as provide you with concrete support and advice during the process of your capital raise.
Look for investors who are genuinely aligned with your business’s goals and vision. Do they care about what you care about? Are they passionate about the problem your business was created to solve?
Keep the original purpose of your business front-of-mind when meeting with potential investors. If necessary, write down the problem you identified as well as the reason you’re passionate about solving it, and keep it in your pocket whenever you go into an investor meeting, to remind yourself of the bigger picture.
Keep a list of questions that you ask all potential investors when meeting with them. These questions should be specifically targeted to suss out how genuine their interest in your business model is. For example: What is it about my business in particular that caught your attention?
