Investment always comes with strings attached. Making peace with that is crucial if you want your business to enjoy the potential growth and development that can come as a result of a significant injection of outside cash.
The biggest string is usually a stake in the business. How big a piece of the pie you are going to have to surrender to an investor depends on how much your company is worth, compared to how much an investor is investing. For example, if your business is valued at $100,000, and an investor invests $50,000, he is essentially buying a 50% share of your company. However, the same investment only buys a five percent share in a company worth $1 million.
So, now that your company is part of someone's investment portfolio, there are certain expectations you will be expected to meet:
Form a Board of Directors
A formal board with rights of approval on all strategic decisions must be created. Investors will often demand board seats, and will also expect a periodic report from you, highlighting key issues.
Meet Milestone Objectives
On every funding term sheet there will be a list of milestone obligations that must be adhered to if you don't want to risk losing support from your investors for future fundings. The Board (and the investors) must be satisfied with the progress you're making.
You are no longer your own boss, and your time belongs to someone else. Investors can and will visit or call for regular updates and progress reports. You will have to make time for these calls.
You cannot communicate too much with the people who have invested in you. Don't wait for demands before giving them important updates or changes. And don't keep bad news a secret - you have a legal obligation to share all information with your shareholders. However, it is a bad idea to seek their opinion on every minor issue. Strike a balance.
Be Even Stricter With Investor Cash Than With Your Own
Spend it wisely in accordance with the business plan you used to secure the investment in the first place.
For help finding accredited investors for your business, visit VerifyInvestor.com.