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Getting investors: It’s not just about money

FINANCIAL STANDARD
By Kagure Gacheche | March 10th 2015
careers Financial Stress

MY TIP IS: Pick investors for your business wisely. Speaking from experience, getting financing from the wrong sort of person or business can destroy a dream you have worked hard to build.

You have to think beyond the capital investment when someone approaches you with the intent to give you a leg up. I know it’s tempting to just take the money and run, but believe me, you’ll appreciate taking the time to really analyse whether the investor is worthy of you and your business.

When I was starting out, I was approached by a friend of a friend who was looking to support my company in exchange for 40 per cent of my profits in a printing contract I was pursuing. It sounded like a fair deal — I was desperate for cash to meet my client’s needs.

I accepted the cash gratefully and signed a perfunctory contract. But things did not work out as planned, and my investor constantly undermined my decisions and staff.

His ideas about how to go about meeting the contract were completely incompatible with mine, and frankly, with the nature of the industry I work in. I couldn’t get rid of him as early as I needed to because I did not have the cash to pay back his investment.

The thing is, I did not know his business history, his work ethic or his risk profile. Yet, out of a need to be liquid, I accepted his money and saddled myself with an investor whom I later found was really bad for my business.

Don’t fall into the same trap and be blinded the immediate monetary gains.

Pick the people you partner with carefully. Find out how they work, what they expect from the partnership and what other people say about them.

Do your research: you and your business are worth the time and effort this will take.

Make sure you agree with your investors on all the important business values. And be very clear on what you expect from the partnership. Write it down to remind yourselves of the details of the commitment you are making.

And do not cede too much control, particularly if your business is something you hope to continue with long term. There have been too many stories of entrepreneurs being pushed out of their own companies — remember Apple’s Steve Jobs?

— Em R

Send in 300-word tips for young entrepreneurs from your personal journey to [email protected]

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