There are many different ways to fund a venture. You could use your own money, or borrow from your friends and family, or take out a business loan from a bank. And then there’s the whole matter of investors. While you might get your project off the ground using money from one source or another, there might come a point when you open your start-up to investors. As with most things related to business, there’s not a “one size fits all” reason why people might take an investor’s cash. In this blog, we’re going to look at some of the main reasons why you could decide to take their money, as well as offer some advice on how you should or not.
There’s a Big Order
If you’re in the manufacturing business, then you might just be one order away from reaching the big time. Alas, sometimes when that order comes around, you don’t have the cash or credit line needed to fulfill that order. An investor can help fill the gap. It’ll be an attractive proposition to them because they’ll know that what they’re dealing with is a viable venture.
They Need To Grow
Most companies start out as just one or two people. By the time they’re in the public’s imagination, they’ve grown much bigger than that. The issue for companies is that when they’re first starting, they usually need to sink all their money into simply staying afloat. They don’t have enough cash to grow their business. An investor can provide the money that a young start-up needs to hire people and grow the team. This could be early on, but it might be later, too. At some point it’ll become clear that it’s time to expand — and an investor can help with this.
They Need Expert Help
A business owner knows their product inside out. They’ll be able to tell a potential investor or indeed anyone else exactly why the world is ready for that item. However, while they’re good at selling the product on an individual basis, they probably won’t have the experience needed to amplify their offerings for a mass audience, both in terms of marketing and industry know-how. An investor’s cash can be used to bring in experienced people who usually command a higher salary, who will help to bring all the pieces together.
They Need to Make Connections
If you’re a young newcomer to your industry, then you probably won’t have all that many connections. You’ll have some, but it’s unlikely that you’ll have as many as you need. In certain industries, connections are everything. An investor can provide money but they also provide introductions to key people. This isn’t the case with all investors, of course, but generally, you should expect that’ll bring something like this to the table. In this sense, you can think of an investor as more than just a checkbook — they can also be a fast-track to the big league, where things can really begin to happen.
And Build Respectability
There are some investors that instantly legitimize a company. It’s like if Mick Jagger mentioned a young band as the next Rolling Stones; you’d listen because you know that he knows what he’s talking about. It’s the same in the investor world. There are many world-famous investors, but of course, it’s likely that you’ll get one of those names on board. However, it is possible that you’ll get a name that’s notable in your specific industry, and that can be highly valuable.
They’re In a Capital-Intensive Industry
There are some industries that just require a lot of capital, and there’s sometimes no way of getting around that fact. It could be so capital-intensive that regular funding just one cut it. However, the good news is that industries that require a lot of capital are usually appealing to investors because it generally means that the company is doing something important. If you have this type of company, then look at working with an expert to secure funding. There are people that have experience in dealing with robotics, AI, and biotechnology investors. If you’re doing big and important work, then there’ll likely be a number of investors that would be happy to deal with you.
They Need to Assert Their Dominance
If you’ve got a great idea, than that’s a fantastic start…but it’ll usually mean that there’s another company who, having seen what you’re doing, have decided to follow the same path And unfortunately, if they’ve got more experience and cash than you, then they could become the dominant force in your industry, even though you’re the one who showed that it’s possible. When you’ve got a great idea, it’s important to assert your dominance in that sector before anyone has the chance to do so. You won’t get too many opportunities to grab a huge slice of the market share, but if you do, then it’s important to miss the chance.
How Should You Decide Whether To Accept an Investors’ Money
So now that we’ve looked at some of the reasons why you could take an investors’ money, let’s think about whether you should. It can be tempting to see a large sum of money dangled before your nose, but you shouldn’t always grab it. There are plenty of reasons why doing so could hurt you in the future, so it’s not something that you should jump into.
If an investor is providing connections and openings, not asking for too much of your company, and is happy for you to take the lead, then those are good signs that the relationship will be productive. Also, don’t ignore your gut instinct. You might find that you have, for whatever reason, a bad feeling about an investor. At that point, it’s usually best to just move on.
But if you feel good about the arrangement and manage to get it right, then you’ll find that an investor can be a brilliant asset to your company, not just in terms of cash, but also experience.