6 Methods Of Avoiding an Unhelpful Angel Investor

One lesson will help anyone through life - be careful who you accept money from. Not all money is good money, and can lead you into obligations you may not have wanted.

Understanding that is especially important when launching a business. Sure, you may need funding for fantastic structural implementation such as using the best CNC machine shop, outfitting your managed IT support, and launching the best website, but doing so while attaching yourself to an unhelpful investor or loan terms is not worth it.

In fact, the former is most essential to keep in mind. Investors can often talk a big game, but if they require a percentage of your firm or certain rights for providing you the cash, being locked in to an unwanted arrangement could cause issues down the road.

It’s also important to make sure your firm has the same values as your investor. If you want to be sustainable, but they don’t? Well, that’s a fundamental conflict.

So, how do you avoid that? In this post, we’ll discuss that and more:

Choose An Investor With Experience

Money is important, but a wise investor that can offer advice is priceless. They'll get what you're going through and might have useful connections. Don't just chase the biggest cash injection no matter how tempting it is - find someone who can offer structural insight. Their help could save you from easy mistakes.

Accept Manageable, Scaleable Terms

Don't bite off more than you can chew. Make sure the deal works for you now and as you grow. It's tempting to grab whatever's offered, but think long-term. Can you live with these terms in five years? Ten? If not, keep looking.

Don't Accept Too Little Investment

It might seem safer to take less, but being underfunded can be just as risky as being over-leveraged, especially if it means you have an investor who only wants a return and doesn’t offer help. Figure out what you need to get off the ground and don’t be afraid to stick to that. It's better to wait for the right deal than struggle along on car fumes.

Don't Sign Away Rights & Ownership Control

Keep a firm grip on the reins, it's your business, after all. Be mindful of deals that chip away at your control, because an investor would love nothing more than a major return and to own your enterprise. Read the fine print and don't be afraid to push back on terms that leave you unable to implement your vision.

Check & Vet The Investor's History

Don’t just accept cash form anyone. Do your homework. Look into their past deals and talk to other founders they've worked with. Are they known for playing fair? Do they add value beyond money? A little digging now could save you headaches later, or even prevent horrible surprises down the road, such as realizing the cash wasn’t clean in the first place. That might sound movie-like, but unfortunately, this can happen in some industries.

Don't Expand Too Quickly, Push On By Obligation

Putting it simply, don't let investor pressure push you into growing faster than you're ready for. It's okay to take your time and do things right. Sustainable growth should be the name of the game, it’s better for your investor to get a smaller return for longer than an immediate repayment. If they push for something else, go elsewhere.

With this advice, you’ll be certain to avoid expanding way too quickly.

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