So, you’ve got a great business idea and the passion to make it work. But, you need capital to realize your dream. It does not matter if you go for kick-starter campaigns, loans, or investor funding – you have to be sure you meet the expectations of the people who put up the money. After all, being an entrepreneur requires more than just passion, but also a knowledge of the business world and an understanding of investor expectations. In this post, we will discuss the expectations from an investor and how you can meet them.
The New York Times and Inc.com wrote about the story of an ice cream shops founders who got fired by their investors. Work with a lawyer to fully understand what it means for you to get investor money.
Why does an investor invest in your business?
Investors are looking for a return on their investment. A successful entrepreneur must understand that they cannot treat investor money as their personal funds. While it is possible to receive a significant amount of money to start or grow a business, you have to be vigilant. Investors will expect their money to show returns and help them recoup their investment in a given period. You cannot use it for a new car or extensive business travel or luxury items.
Why should you not take investor money?
The first reason is that if you do not meet their expectations, investors might end up owning more of your business than you would like. The investors’ expectation is for their investment to show positive returns. When taking investor money, one should never be in a position where the investor ends up seizing a significant portion of the company and taking control.
Have clear legal agreements reviewed by a good lawyer.
Treat any investment as a business partnership, and have a legal agreement to reflect that. Such agreements should outline the equity and share of profits the investor will receive and what their involvement will be in the decision-making process. Careful attention should be given to financials, milestones, and timelines. Be sure that you seek advice from an experienced attorney to help create an agreement that will escape any loopholes and ensure you meet the investor’s expectations.
Investors Expect a Return on their Investment
Be realistic about your financial projections to make sure you deliver on investor’s expectation. Investors will ask to see projections for your company, both short and long-term. Be honest about your projections and use facts based on your research. Investors will take notice if you inflate your numbers with no merit, and losing investor trust could potentially stall or ruin your business. To make sure you meet investor’s expectations it is important to be realistic in your projections.
An Investment is Not a Gift or a Donation
As an entrepreneur, it is easy to see any money coming your way as “free money”; however, investor funding isn’t free money. Remember to always to be professional and respectful when dealing with investors. Doing business ethically and professionally will develop the trust and confidence of investors. Keep in mind that any investor wants to see that they put their money in something that will work and bring them a return, just like how you have invested your time and passion.
Investors’ expectations are top priorities to achieve if you plan to get funding from them. They expect a definite return on their investment in a given period. As an entrepreneur, you have to raise capital, but you also need to understand the dynamics of doing business with investors. You should not treat investor money as a personal loan; otherwise, you will compromise your business’s integrity. Communicate honestly and professionally, being open to feedback, to gain and keep investors’ trust and move toward achieving your business goals.