• Ben Watson

Risk of Investors

Having a good venture capital firm or investors on your side can be a beneficial funding. They bring capital, connections, and expertise. You give up equity, management say, and more. But the skills and knowledge gained in previous roles, along with a broad perspective from working with many companies, can be some assets to you.

But what if you get a bad investor? What impact could that have on your company and your dreams to make it big? 

Here are some potential tell-tale signs, important to identify prior to any long term relationship:

  1. No capital. There are some investors that are issuing term sheets and even signing investment agreements that do not have capital to invest. Sometimes, founders have waited up to six months for a closing that never happened. The result can be catastrophic. Through over-optimism, stupidity, or both, they sign agreements to invest in companies hoping their funding will close in time. When it does not, they let those businesses down.

  2. Cancelling the term sheet. A term sheet is not legally binding. This means that right up to the point the investment agreements are signed, the investor can walk away from the deal. This is done all too frequently.

  3. Changing terms. Changing terms after signing a term sheet can often feel like an injustice. It weakens the relationship between the founders and the investor. The damage can be long-lasting. Especially the case where the investor knows the company is nearly out of cash.

  4. Excessive fees. The fees associated with investors can be daunting. And you will pay all of them.

If you want to consider alternatives to investors, banks, or personal loans, just contact us about our cash grants program. Just get some information and compare the advantages of cash grants, and maybe just add them to your portfolio of funding choices.

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