Founders Need to Look for These 5 Red Flags While Approaching Investors for Startups
Why you should consider going solo on your entrepreneurial journey
Founders are very passionate about their ideas and look for ways to secure funding from investors to turn them into a reality. But all founders should be aware of the different aspects of raising money through investments so that they can pick the best investor for their project. Here are signs that tell when an entrepreneur needs to leave the negotiation table with an investor.
1. Investors might have a different vision
Startup owners do not always agree with their investors and this can lead to losing control over several departments in their own company. Even if an investor has genuine intentions for your company, you might have a different way of seeing things. This will create a conflict of interest leading to unnecessary arguments that might affect your startup. There are many such examples that beginners can see on "Shark Tank."
2. Lower risk-taking freedom
If an entrepreneur is not taking any risks and exploring new things, the company will not be able to flourish and might be lost in the market. Most owners do not prefer investors if they feel that their risk-taking freedom will be affected and lead to less creative outcomes. After all, investors are less inclined to lose money in the excitement of doing something new.
3. Company culture might change
Every entrepreneur has core values around which they want to shape their company culture. Startups nowadays are mostly focusing on a culture that ensures work-life balance and competitive salaries for their employees to drive better productivity and innovation. But investors might come with a different mindset and values which might affect the company's work culture and antagonize employees.
4. Decision-making power might be compromised
Being an entrepreneur, one can make all the decisions but once the investors come, things change a lot. Investors may bring their strong views into decision-making around sales, finances, change of departments, client management, etc. As a founder, one might lose the power to defend their views. This not only limits the freedom of decision-making but also restricts the exploration of new ideas.
5. Unwanted rush in business strategy
If you have not created your entire business plan on how things will go at every step and you are unsure about some elements, it is better to avoid raising funding and inviting investors. Firstly, investors get easily attracted and convinced by entrepreneurs who have clear business and monetization plans, and without one, you might seem unprofessional and lose the chances of funds in the longer stages. Also, if you approach an investor, you might have to rush and make a business plan that will not do justice to your company.