I’ve posted similar stuff on this blog before, but it’s always nice when you get it straight from The New York Times. I just read Financing, With Strings Attached on NYTimes.com. My favorite line–I heard it first from Portland, Ore., venture capitalist David Chen — which I use a lot is “choose an investor like you choose a spouse.”
It seems obvious to me. Somebody puts money into your company, and that person has ownership; and you have a partner and, depending on how things go, a boss. At the very least, a partner. Doesn’t it seem that compatibility should be important? It does to me.
Author Dalia Fahey reports lots of anecdotal examples of strings attached by investors:
His complaint is echoed by other entrepreneurs. They tell of putting years into finding a business strategy that works and how their success attracts a professional investor. Then, while negotiating the terms of his involvement, the investor asks for changes. He might want to move a company’s headquarters or fire the chief financial officer. Or he might ask to replace one product line with another.
Especially in this weak economy, entrepreneurs may feel pressured to comply. And many times, complying is the smart thing to do because investors usually have more industry experience than the entrepreneurs they finance. Some entrepreneurs also cling to irrational ideas. But agreeing to such requests just because an investor offers cash is not always the best thing for the business, experts said.
Another reminder: Bootstrapping has its advantages.
And there is also the underlying obvious point. Plan well first, before it’s too late, to match the funds requirement to the opportunity. Some ventures need more investment than you can bootstrap. In that case, go into it with your eyes open, and be careful. Don’t just look for money; look for partners you can work with.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
