Week 7 blog: Investor dilemmas: Adding value, adding risks (Chapter 9, The Founder’s Dilemmas).
I think the ideal situation would be if you have enough money to do self-funding. That is the least risk situation. You are not risking anyone else’s money but your own. This is my plan to start small and after selling a product use that money to buy more supplies and sell another product and so on, and hopefully eventually grow the business. Once it is growing I think it would be easier to get investors at that point. Investors are desirable because they can also provide social capital and experience advice to help you grow your business. The risky part comes in because investors always want to see a return on their investment, but it is somewhat of a gamble, there is no guarantee that the business will do well and produce sufficient returns. That is a lot of pressure on the founder especially at the start of a company.
Money coming from friends and family is the easiest and most accessible. In my case my father was a vice president of a startup company. He has years of experience to offer me advice and direction that usually would be found from venture capitalists. Angel investors usually come from third party networking. The founder that I interview for the SME interview started his company by having 50 angel investors. That shows me how much it takes to be able to start with angel investors. Venture Capitalists are the hardest to obtain they want more predictable financial capital, they are not willing to risk like family and friends would be but they are also able to offer a lot more than family and friends would be. One thing that might give investors peace of mind is if you are bringing your own funding to the table as well as them. To show them that you believe in the company’s success enough to put in your own investment. If they see that you are willing to risk as well as them, they may be likely to take a risk.
Even when it comes to investors it seems the question is still if you want to maintain control or wealth. If you are wanting to retain control of your company the strategy for seeking investors would either be self-funding or family and friends investors. If it is wealth you are seeking, then you would want to have angel investors or venture capitalists who would provide support with growing the business even if that means for them to take over decision making for the company. If the investor decides to contribute a substantial amount of money or assets they would consider bringing in a new CEO or one of their teams to insure that they will be successful. This will ultimately take away full ownership and decision making that you started with. You would then be under the investors control until you decide to sell your portion of the business. Another way to gain control of your company is to have a binding contract that states after a certain time or profit the investors will pull out and leave the company for you to maintain.