Startups

Why you need to be careful about who you let invest in your startup

  • 4 min Read
  • January 29, 2017

Author

Escalon

Table of Contents

Choose your investors carefully. This is an important statement because it can mean the difference between your startup’s success and its failure.


Let’s take a look at why you need to be careful about who you let invest in your startup.


Friends and family



This may seem counter-intuitive, but in all reality, friends and family don’t always make the best investors.


We acknowledge that friends and family are often the first people startup founders look to for cash.


Sometimes this works out great, but for those of you who have a nagging feeling about taking on Uncle Matt as an investor, we advise you to listen to your intuition.


Before you let friends and family invest in your startup, you want to set some ground rules:


  • Present them with your business plan just like you would any investor. You want them to know exactly what they’re investing in.
  • Be professional when it comes to this side of your relationship. You want them to trust you and our business.
  • Explain all the risks to them.
  • Tell them they can’t sell their shares. While they might be well-versed in investments, investing in a startup is different, and you want them to understand that.
  • Don’t take money from someone you know is overly controlling.

Inexperienced angel investors



You want to make sure your angel investors have some experience in this type of investment. It’s hard enough to start a business without having to devote time to a large learning curve on angel investments.


Plus, you want to make sure their portfolio consists of multiple investments. This lets you know they have experience and can handle your startup.


Ego maniacs



Get to know your potential angel investors and do your research. Talk to other portfolio CEOs about their relationships with a particular investor.


They can shed light on whether or not your investor is easy to work with or too controlling.



It’s much easier to look for money elsewhere than it is to break up with an investor after the fact.



Talk to us about how our back-office services can help your startup move and make decisions faster.



Third-tier accelerators



Many startups are looking towards accelerators to get their startup off the ground. Accelerators can provide you with money as well as office space, mentor-ship and marketing in exchange for a piece of your company.


Be careful when choosing to partner with an accelerator and watch out for the following:


  • Read the fine print. Know the terms for your participation.
  • Do your research. Find the best accelerator for you.
  • Don’t give an accelerator equity in your company if they aren’t providing you with cash.
  • Talk to other startups who used a particular accelerator. Ask for their review and find out if they thought the accelerator’s help was useful or hurtful.
  • Ask yourself if you’re getting caught up in their great marketing or if you really need their help. Can you launch on your own without the accelerator?

Final thoughts



If you’re like many startup owners, you might think you need an infusion of cash, and it doesn’t matter where it comes from. This can’t be further from the truth.


Not only do you have to be careful who your investors are, but you need to manage your investors to avoid overly stressful problems and the death of your startup.


Finding the right investors and managing them is part of your job as a startup founder. Here are a couple of “rules” to follow when it comes to your investors:


1. Don’t ignore them.

After all, they’ve given you their money. Plus, they may have some insights that prove useful.


2. Don’t let them run your company.

That isn’t their job. It’s yours. You don’t want to give in to investors when you know it’s not right for your company.



You’ll find it’s a fine balance between pleasing your investors, keeping them informed, seeking their counsel and letting them take over.


A word of advice, though – if you took on venture capital, then your investors most likely make up your board. This means they really are your boss. It can be a slippery slope, so you want to stay connected with your investors while still managing your startup.


Bottom line – you can’t fire your venture capitalist.


As long as you keep them in the know, have the same goals, manage your startup properly, and gain traction quickly, you’ll find that you earn the trust of your investors.


Want more?

Escalon can help ensure that your accounting, financial records and taxes are accurately done and that they communicate the full value of your business to potential buyers. Talk to an expert today.
 

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

People Management & HR

Benefits Administration, What Small Business Need to Know

Benefits administration can be a game-changer for small businesses aiming to attract and retain top talent. While salaries remain an...

Read More
Accounting & Finance

AAP vs. Cash Accounting: Which Method Is Best for Your Growing Business? 

Choosing the right accounting method can significantly impact how you track financial performance, manage taxes, and plan growth. Two common...

Read More
Accounting & Finance

Beyond Bootstrapping: Advanced Cash Flow Management for Scaling Companies 

Bootstrapping—financing growth through internal cash flow—is a hallmark of many successful startups. But as businesses mature past their initial stage,...

Read More
Technology & Security

Building a Scalable Tech Stack: How to Choose the Right Tools for Growth 

In today’s business landscape, technology is more than a convenience—it’s a strategic asset that can supercharge growth. But as you...

Read More
Accounting & Finance

How to Reduce Month-End Close Time Without Sacrificing Accuracy 

The month-end close can feel like a perpetual scramble—collecting invoices, reconciling accounts, fixing last-minute errors. A drawn-out close not only...

Read More
uncategorized

How to Reduce Overhead Costs Without Impacting Productivity 

Overhead costs—from utilities and rent to administrative staffing—can quietly swell until they erode profit margins and slow your ability to...

Read More
Accounting & Finance

How to Structure Your Finance Team as Your Business Scales

Growth triggers a tidal wave of financial complexity, multi-entity operations, new product lines, overseas expansion, or investor relations. If your...

Read More
Accounting & Finance

M&A Readiness: How to Prepare Your Financials for a Successful Acquisition or Sale 

Mergers and acquisitions (M&A) can dramatically alter a company’s trajectory—unlocking new markets, technologies, or customer bases. Yet, many deals stumble...

Read More
Accounting & Finance

Optimizing Working Capital: Strategies to Maximize Liquidity Without Raising Funds 

Working capital: The difference between your current assets and your current liabilities. It’s a key barometer of financial health.  While...

Read More