Taking on investors
What you need to know about taking on investors in the time it takes to fold a basket of laundry.
While you struggle with folding fitted sheets correctly, we’ll talk you through what you need to know about taking on investors. We’ll also help you sort out whether investment is right for your business.
Like trying to find two of the same socks at the bottom of the basket, we’ll also help you figure out if an investor is the right match for you and your business.
This article takes about six minutes to read.
Taking on investment could be the best thing that’s ever happened to your business. But there might also be a few terms that you might not be quite ready for – one of which might be the input of the investor themselves.
Before taking on investors, it’s important to understand what that means for your business and whether the benefits of investment outweigh its challenges.
And if all the jargon and terminology is a lot to get your head around, here’s a quick guide.
How to decide if you need investors
When it comes to investment, one of the first things you need to consider is whether you actually need it.
You might consider taking on investment for your business if:
a. Your start-up costs are quite high, eg. if you need to purchase heavy machinery.
b. You want to scale your business quickly.
Benefits of investment
Before you take the plunge, there are many things to consider before deciding whether investment is right for your business. Some benefits include:
- Mentorship: Investors are often successful entrepreneurs, so they can help mentor you through challenges they’ve already faced themselves.
- Guidance: Investors have a vested interest in seeing your business succeed, so they’ll be able to help guide smart business decisions.
- Growth: Taking on investment means you’ll often have greater access to funding than you would have with a business loan, as well as a faster rate of growth with increased resources and support.
- Ideas: Having investors to bounce around ideas with can make it easier to solve problems and come up with new ways to do things.
- Networking: Taking on investors means you’ll be able to access their professional networks, which can help with developing and marketing your business.
Difficulties surrounding investment
But there are a few things that you might find challenging about taking on investors. They include:
- Giving up equity: When you take on investment, while you don’t owe debt to your investor, they will own a percentage of your business. They are therefore entitled to a share in your profits.
- Giving up control: As you now have co-owners, depending on the equity arrangements, you may need to give up a degree of control over your business. This may also mean that you need to negotiate with investors over the direction of the business
- Fulfilling other obligations: Your investors might write specific terms into your agreement that you’ll need to fulfil. For example, it’s common that venture capital (or “VC”) firms or accelerator programs will ask you to attend firm-sponsored events or participate in PR activities if they invest in your company.
How to know which investor is right for you
It’s normal to be excited when someone offers you investment – it’s a sign that they believe in you and your business.
But before you jump at the chance to take the money, take the time to assess whether the investor is right for your business.
Here are three questions you should ask yourself when deciding to take on an investor:
1. What skills they can bring?
What are their areas of expertise? Do they bring skills that you don’t have? Do their skills complement your own?
As investors will often have a say in how you run your business, ask yourself what their skillset is and if your business needs it.
2. Is it a good cultural fit?
Working with someone who has the same values as you do is important. This is especially true when it comes to investors, as they tend to become a part of the business’ leadership team and set an example for the whole company.
3. Do you get on well?
Working with someone you get along with can have an impact on how well the business performs.
You should get to know your investor on a personal level before they get involved with the business. This will help you decide if they’re someone you want to have around for the ride.
4. Do they have any legal requests?
Some investors will request some legal provisions when they invest in your business.
Whether that’s wanting to sign off on major financial decisions before you make them, or requiring you to fulfil certain PR obligations from time to time, you need to understand what expectations may come tied with the investment before you sign the dotted line.
Top 3 takeaways
- The first step to taking on investment is knowing whether you need it. Businesses usually take on investment if their start-up costs are high or if they’re ready to scale up.
- Weigh up whether the benefits of investment are worth its challenges. Some benefits of taking on investment include access to professional networks, mentorship and guidance, new ideas and accelerated growth. But some challenges might include giving up equity and control, as well as having to fulfil certain legal obligations.
- Remember that investment comes with an investor. It’s important to assess whether the investor is the right fit for your business.
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