Securing an investment for your business will be a pivotal moment – a time when many doors are opening for the first time, and those bigger, grander plans you made can finally start coming to fruition. Still, exercise plenty of caution and avoid making these common mistakes.
Business Investment Mistakes to Avoid
1. Proceeding without legal advice
Procuring investment represents a significant business move – and, as with any business move, you’ll want to make sure you are covering all your bases, protecting your interests, and going into this next chapter fully cognisant of the ramifications it holds (or could hold) for your business.
Corporate solicitors are the best possible resource to turn to as your business takes on investors. Don’t overlook their importance, particularly in these early stages.
2. Asking for too much
If you need X, but think it may be worth asking for Y so you have a buffer, you may start to deter promising investors. Any entrepreneur who wants to succeed will need to be realistic, open, and frank about the amount of investment the business requires, or investors will grow sceptical.
3. Unrealistic projections
Again, this is an easy way to lose interest from some of your top prospects. It’s tempting to put the rose-tinted lens over your projections, but this will only ever come back to haunt you. Experienced investors do their due diligence, so honesty (and realism) is only ever the best policy.
4. Having no specific plan for the funds
Plenty of start-ups and entrepreneurs start looking around for investments before they’re even ready to take them on in the first place. Get all your ducks in a row first, then start sourcing investors.
5. Inflexibility
While it depends on the sort of investor you choose to work with, some investors will expect to have some degree of input or say in the ways in which the business is run. It’s a mistake to dig your heels too deep into the ground. While you don’t want to relinquish all control (or any more than is necessary), many investors offer some invaluable guidance and insight garnered from many years of experience in your industry, or in business in general.
6. Diversifying too quickly
With a big cash injection, it’s very tempting to start taking on the world from every angle, all at once. But this is an easy way to spread yourself too thin and, eventually, burn out. Focus on building up core areas of the business first. This is the best way to build a future-proof, scalable business – one that, eventually, will be ready to take on the bigger tasks.
7. Jumping at the first opportunity that comes along
Don’t back yourself into a corner with the wrong match. There are so many opportunities out there for promising start-ups to find the perfect match, but overeagerness can be a real downfall. Talk to peers who have been in the same situation, discuss the finer details with your corporate solicitor, and take a breath before making any commitments.
8. Overvaluation
Don’t overblow your business’s current performance. Projections are there to offer future insights, and, provided they’re sound, you don’t need to worry about overcompensating. Investors look for new businesses, and they know the sort of risks they’re willing to take on, so practice candor here.
9. Expecting instant results
Even a healthy investment will take its time to bear fruit. In most cases, this is preferable – you don’t want the money to leave your business’s account as fast as it came in. Be diligent and cautious, and stick to the plan you had in place when you were sourcing investment.
10. Relying too much on one investor
Relying on a single source of funding puts you in a precarious position. If support has to be withdrawn, you could find yourself up the creek without a paddle. Try to look for additional opportunities to keep your business afloat as it works through those early days of growth and development.
