6 Top Reasons For Declining Funding From Investors

In India, where our PM Aims at 1.25 Lakhs startups – Most of Young Entrepreneurs just Talk about raising funding and very few aims at bootstrapping.

Expecting money from Investors and assume no string attached, would you do that with your own Money?

Angel and venture capital money always comes with ownership and management implications, starting with the obvious ones outlined in the term sheet for the deal. These normally include what percentage of the company the investor now owns, how and when tranches of money will be delivered, and even how and when you can sell your own shares (liquidation preferences).  Shares 6 reasons for declining the Funding from the investors.

Your startup is now part of some investor’s portfolio, so you need to treat the situation like reporting to a new boss, and not like a new freedom. That means listening to investor expectations, communicating regularly and effectively, and assuming that all your efforts will now be monitored in the following ways:

You now must have a Board of Directors. As an early-stage startup, you may have some hand-picked mentors as an Advisory Board, but now you need a formal Board with approval rights on all your strategic decisions and pivots. Investors will expect at least one seat on the board, and expect a board report from you each month on key items.

Progress milestones become management objectives. Every funding term sheet is followed by a set of milestone commitments, which should not be considered optional suggestions. Funding can be pulled, and future distributions withheld, if objectives are not met. Your very role as CEO is at risk if the Board is not satisfied with your progress.

Your time is no longer your own. Many investors will feel the need to visit your office, or just call you to chat, for a personal update on how things are going. They see you as working for them, as opposed to them working for you, so these calls, visits, and questions are not something you can delegate, or postpone repeatedly.

Communication to investors must be regular and proactive. A quick way to lose support of investors is to wait for prodding from them before providing communication updates, or answers to changes in status or direction. On the other hand, calling them on every minor issue, or asking them to make decisions for you is equally bad.

You can’t keep bad news secret. Most entrepreneurs try to keep team morale high by limiting and editing the flow of information downward, so they try to do the same thing upward to their investors. Unfortunately, this practice can get them fired quickly, due to the legalities of the shareholders rights agreement on what must be shared and when.

Cash flow tracking is even more important with someone else’s money. Since they now have money in the bank, entrepreneurs sometimes start delegating spending decisions, or they decide that it’s time to make that trip to Paris that they couldn’t justify before. You must be even more strict with investor cash than with your own.

In reality, when you take someone else’s money, your job as an entrepreneur gets even tougher and riskier than before. I’ve seen many startups that might well have succeeded, if only they had not attracted all the money they wanted. In the startup world, hardship and struggles are often your best teachers. If you do take investor money, do it with your eyes open. It can disappear quickly, leaving you with just some heavy strings.

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