This is a cautionary tale of what happens when you take money for your business from the wrong investor. Raising money for your business is a sales process. Like selling your product to your customers selling your ideas and business future can come with pain and strain on the businesses success.

There are many theories on raising money and what it takes to get that term sheet for your business. That is not what we are discussing here. However, the most pivotal moments are those first investors who typically come with many strings attached, especially when they are not institutional investors or a fund management groups like Series A or Angel funds managed on behalf of multiple investors. What we are discussing here is the companies that have experienced an investor that is an individual high-net-worth investor.

Most times you meet these people through a connection who believes in your idea, not always but these people you come to you with an initial vision they can help you move the business forward with their money. On the surface it may seem that taking money from investors like is the right decision and not just based on the dire need for cash,  the term sheets seem less invasive, or you knew of this person and they were successful so why not take money from a connection like this.

Remember this statement “it’s their money its not the companies money” and the terms usually come with more than just high percentage ownership of the business.

It comes with…. Emotion.

Emotion in investment is a recipe for disaster, whether it’s in a year or 10 years this owner of the company believes it’s their money and they can call all the shots.

Most of these people believe that they know more than you and your team because they made money elsewhere or inherited money from generations before. The reality does not matter, if they do or don’t it’s their money and in many cases, these investors will want a return on their investment and will make choices for your business that are not in most cases the right choices because of the lack of experience in what your business does.  You will feel as if you are pushing a boulder uphill most of the time.

This is very much the opposite of investment from the other channels, Angel funds, Venture rounds or Private Equity firms. They want to help surround you with the right people because this is what they are built to do. Private investors typically will surround you with their family members or friends who think they understand what it is you do. In reality, these people are less inclined to care since they were already on “the payroll” with that individual.

On the surface, these investors may seem like the best choice at the time. Over time most come to learn that with all the good they brought, they come with as much bad if not more for your business. Take it from those we’ve worked with in this situation you will no longer have any control in what happens next because it’s their money and we know how people are with their money.

Last modified: June 11, 2019

Comments are closed.