It will only accelerate your path to failure a lot sooner.
4 Dec, 2017ARTICLES.BPLANS.COM
You may think that when someone offers you money to fund your startup, you should find a way to take their money. But even more important than landing an investment offer is knowing when to say yes to investors and when to say, “Thanks, but no thanks.”
Just because someone has money doesn’t mean they have the knowledge to help you grow your business.
And that’s what I mean by “dumb money”—I’m a firm believer that anyone who invests money in your business should also bring something other than money to the table.
It is possible to take money from investors who choose to be “silent partners”—but you’d better have that clearly agreed upon, as well as clearly outlined and documented in your operating agreement to avoid any conflicts later on as you grow your business. It’s not the standard.
So how do you know when money’s dumb to take? Here's a Ten-Point Checklist
If you can answer “yes” to any of the following questions about the person or people giving you money as an investment in your startup company, you may be taking “dumb money”:
This is not an exhaustive list of questions to consider during your due diligence process with a new investor, but these are all items you should be able to confidently answer “no” to before moving forward with taking the investment.
I hate to admit it, but I’ve been on the receiving end of “dumb money” myself—in my first startup company, I took a significant amount of investment capital from an angel investor about whom I would have answered “yes” to questions 1, 2, 3, 4, 5, and 8.
Needless to say, that company failed. It didn’t fail because of that investor, but it did fail because we made a series of mistakes that, when combined, created a perfect storm.
It’s important to seek out investors who add immediate value to your company—and not just to your bank account. This helps create a healthy investment culture in your startup and sets the tone for how you’ll continue to grow the company.
Below are examples of what “smart money” brings to the table, and what you should seek out from potential investors:
About the Author:
This post was first published by Caroline Cummings on BPlans.
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