So often in the business of writing business plans we meet first time entrepreneurs that believe that getting their hands on some startup capital from an investor is all they need. In many cases, novice entrepreneurs have solely that short goal in mind launching and finally starting to turn the wheels. However, it is important to realize that investment money comes with some responsibilities. So, here are a few pieces of advice on why not to accept outside funding without careful deliberation on issues that come hand in hand with the much needed capital. After all, picking an investor for your business might turn out to be more permanent than marriage. Therefore, understanding of the matter is essential.
Bootstrapping VS Accepting Debt Investment Capital If your business bootstrapped to get started, there is a chance that you will make a profit for yourself closing on your first sale. On the opposite side, when you have accepted a loan to get started in the moment you make that first dollar, at least some of it will go towards your debt and you are still a long way from making money for yourself.
Investment Capital Comes at a Cost and it is not necessarily only the cost that you are expected to pay back in dollar amount. Often investors believe that they have the right to guide and advice your business as a way to manage their money. They might have their own idea of how to improve on the business, who should be in the managing team, and what business direction to take. If your angel investor knows nothing about your personal values, the building blocks of your own business, the daily choices and goals that are unique to you and your business it is likely that he/she will not be well equipped to take important decisions concerning the future of your business. The outside guidance might turn out to be more of conventional wisdom of an observer, could have no real connection to the realities of your business and could turn out to be destructive in the long run. If you believe in your vision and you want to execute it unaltered you might prefer not to rely on outside investment.
Investors as Your Business Coaches Most investors actually have experience in the industry that they invest in. As a first time entrepreneur most likely you dont. Your investor might in fact be a useful business coach that could guide you steadily around the pitfalls and could lead you toward the milestones. As they say Good judgment comes from experience but experience comes from bad judgment. So, it might be beneficial for you to consider learning from your investor.
In conclusion, neither the bootstrapping nor the raising capital strategy is fundamentally wrong or right. They both have pros and cons. Considering and weighing in on those can make all the difference for the future development of your business.