That title is not an error, we are going to be taking a look at some of the reasons why you may need to say no to investment.
It might seem crazy, considering the efforts it can take to raise money and there are the inevitable fears that you might not get another chance – but sometimes it is for the best.
Before we get started, this article is going to focus on startups, so if you’ve been operating successfully for some time, then a lot of these points may not apply to you.
Read the 5 steps to getting funded
For those of you who are running a startup, here are some reasons to say ‘no’ to investment.
Who’s Pulling the Strings?
One of the perks of running a startup is the sense of freedom that comes from being your own boss, calling the shots and answering to no-one but yourself.
If you need the help of a venture capitalist, then bear in mind that once you’ve taken their money, they’re going to have some measure of control – or at the very least some influence – over the running of your company. How much will depend on the size of the stake you traded in for their investment, but if you want to have sole control, then you need sole ownership.
An investor may even have a representative on your company’s board if that’s how the business is structured, and any board has the power to oust even the most senior members of management.
Tarred with the Same Brush
However, much money is being put on the table, you cannot put a price on reputation. If your potential investor is famous for all the wrong reasons, then their association with your startup may see you unjustly viewed in the same way.
Consider also whether this particular venture capitalist’s views align with yours, or if there might be a conflict of interest, however minor. As an example, if they have invested in fossil fuels and your startup is dedicated to being green, are they really the right person for you to be tied to?
Fishes and Ponds
Look into how many businesses your investor is involved with, in whatever capacity, as the number of deals they have made might be an indicator of whether it’s time to join their portfolio.
A venture capitalist who has invested in several companies, whether it’s established businesses or other startups, may not be able to give you the attention that you want or deserve.
On the other hand, if they have not made any investments what sort of track record do they have in helping startups? As with any decision, the key is always: research, research, research.
Words Worth More than Gold
Money is good, but wisdom and mentorship are better. If the source of your venture capital is only going to engage with you on a financial level and not provide any sort of wisdom, then it might be a good idea to look elsewhere.
One investor might offer all the money you need but have little-to-no experience in your field, or worse, little-to-no interest in helping you, whereas another might offer less money but be “hands-on” when it comes to helping your startup achieve its goals. The second of these investor examples is likely to be your best bet for long-term success.
Slow and Steady Wins the Race
A sustainable business is built on sustainable growth; there’s a reason the words boom and bust seem to fit so naturally because the former almost inevitably leads to the latter.
Investors looking for fast-growing valuations are going to be focused on getting their money back as soon as possible and are not going to be as concerned with how your company is going to expand in the future. If they are obsessed with the “now”, then now might not be the time to get involved with them.
Before you take someone’s money (and again, that means they have a say in how your business is run) find out if they agree with your vision for your startup. This, like most of the points discussed, comes down to trust.
Trust Your Feelings
Most of the time, if something does not feel right then often that is because it is not right. This is as true with business as with any aspect of life.
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That does not necessarily mean that there is anything sinister about your investor or that taking their money would be inherently bad, but you are just not sure that a deal and therefore a relationship is going to work out.
It could be a combination of factors that make you believe that you and your venture capitalist are not on the same wavelength. This might seem odd or even a little vague but relying on gut instinct is often one of the reasons investors themselves turn down startups who apply to them. So, if they can make decisions based on this then so can you.
Knowing When to Say No
If, after taking into consideration all of the above points and having done plenty of research, you decide to say no to an investor, remember that this does not mean you are saying no to venture capital forever.
This person may come back to you at a later date if they truly are interested in your startup or you have explained that you would like to discuss a deal but the timing just isn’t right at the moment. A better option might even present itself down the line.
Remember also that you have every right to ask questions, as there is absolutely nothing wrong with being diligent and making informed decisions. Choosing to say no is not the same as being indecisive.
Ultimately trusting your own judgment is key. Apply the same belief in yourself that you had when you began this whole journey of creating a startup, and you’ll know in your head and heart whether it’s time to say yes, or no, to investment.