In the variety of options for financing a startup, many entrepreneurs entertain the idea of inviting investors into their businesses. Working with an investor can help you grow your business quickly while also leveraging their expertise. However, despite the benefits of an investor, there are also many reasons not to partner with one.
On the fence about this important financial decision? A panel of Young Entrepreneur Council members share some reasons why aspiring entrepreneurs may wish to opt against investors for their business.
1. Investors May Have Differing Visions
You may have a concern about a loss of control or the shareholder percentage. While an investor may have good intentions, they may also have a vision different from yours or they may not understand the venture. Having too many people at the controls can cause conflicting views. Intentions may also be different. Some investors are genuinely interested in helping your business scale rather than grow to obtain as many customers as possible. Others may have hundreds of investments and care more about the profitability, without considering other factors. Shark Tank parodied this in a promotional clip when Bill Nye pitched a charity party to raise awareness of climate change, and the investor sharks asked what the financial benefit was. – Duran Inci, Optimum7
2. You Won’t Be Able To Take As Many Risks
Here’s the simplest reason not to have investors early on in your startup’s life: You owe them something. You’re less free to pivot, take risks, be creative and experiment when you’ve got a board of voices reminding you of what you owe and what your startup was “supposed” to be. Not every investor understands how many degrees a startup might pivot in terms of mission, revenue plan and direction. While many of them do have entrepreneurial roots, time and success can make anyone forget what the ground game was like. Obviously, the resources investors offer might be worth it to you. But if you’re at a nimble, agile, evolving, adapting phase of your startup, you might be best served by prioritizing freedom over money. – Tyler Bray, TK Trailer Parts
3. You’ll Have To Give Up Control And Management
You might not want investors for your business if you want to retain full control and management over your business. You have to realize that you give up some of the control when you use investors to fund your business. If you’re not okay with that, you’re better off reconsidering your options. – Stephanie Wells, Formidable Forms
4. Your Culture Will Change
One of the reasons why people get into entrepreneurship is because they want to make a difference in the world. While profitability is critical, other aspects like sustainability, fair trade, providing employees with a higher standard of living and more are important metrics for success. Many people start businesses with the intention of creating a friendly and noncompetitive work environment. Bringing in an investor whose values are different can radically transform a business’s culture—and not always in a good way. I think it’s worthwhile avoiding third-party investments, especially if nurturing your business’s soul matters to you as much as bringing in an income. – Syed Balkhi, WPBeginner
5. You Want Your Business To Stay Agile And Streamlined
You need to weigh your need for funds against the need to keep your project small, focused and agile. More investors often entails more opinions getting involved with your projections and can weigh down progress. When you bring on multiple investors, keeping your startup streamlined and on target can be challenging. The phrase “too many cooks in the kitchen” applies here. Today, it is possible to raise significant funds through other means, namely through minimum viable products or through forms of crowdfunding, that allow you to keep a single voice leading the project. – Salvador Ordorica, The Spanish Group LLC
6. It’s Not The Right Time To Raise Money
Investors are important if you want to sacrifice a bit of your company for some fuel to grow your company. However, sometimes it’s not the right time to raise money. This happens usually at the start of a company when you might find your meager revenue and skill sets to be enough to get more traction going, which can thus fetch a higher valuation for your company when you do raise money. This means you give away less of your company, and sometimes that timeline might only mean you delay a few months, but those few months might have a substantial impact on your valuation. – Andy Karuza, Base64.ai
7. You Can’t Make Business Decisions Alone
Investors have a financial interest in the direction of your business. They want a say in what you do and how you do it so that they realize a return. You are less likely to be able to make significant business changes without input from your investors. This can prevent you from using creative freedom to explore other options that might make your business successful. One of the most important aspects of starting a new business is flexibility, and that is sometimes lost when investors are involved. – Jared Weitz, United Capital Source Inc.
8. You Might Have To Rush To Put A Business Plan Together
You might want to skip getting an investor for your business if you struggle with what your overall business plan is in the first place. Investors are looking for entrepreneurs who have a solid plan, so without it, you look unprofessional and unprepared. Before reaching out to investors, make sure you’re properly prepared for what’s to come. This will give you a better chance of being successful and catching their attention. – Jared Atchison, WPForms
9. Investors May Decide To Pull Their Funding
The decision to accept investment capital should never be taken lightly. Almost never do investors hand over funding with no questions asked, so the degree of input or control investors may expect in return for their money can vary widely. Will the investors want equity? A say in marketing decisions? Will the investor be able to yank funding if they don’t get their way? Never take lightly the reality that investors usually have a vested interest in your business doing well financially—regardless of how you may believe that should be handled. In many cases, investors are veterans of entrepreneurship themselves, which means their input can add tremendous value beyond monetary aid. Be ever mindful that you may come across situations where you don’t agree, potentially risking your funding. – Richard Fong, SecurityForward.com
10. You Don’t Feel Confident In Your Entrepreneurial Abilities Yet
It’s understood that when you bring in an investor, you relinquish some of your power and control to another person, but this is okay if you already have experience in what you do and your investors respect you. However, if you’re new to running a business, you may feel a great deal of self-doubt. If you feel like you don’t know how to negotiate well or stand up for a decision you’re making, then it’s perfectly reasonable to not want an investor for your business. Take time to grow on your own first and with people you’re comfortable with. When you’ve proven yourself and have gained confidence, you’ll be in a better position to deal with investors who are going to put the pressure on you. – Blair Williams, MemberPress