They say taking on an investor for your start-up is much like getting married.
An investor's dance of seduction, giddying as it is, is about more than just the money. Like the romance of a lifetime, you not only hope to live happily ever after in a palace made of gold, you also think you've attained that ever- elusive emotional and intellectual validation. You complete each other's sentences.
As some readers here would know, this is a utopian dream. In real life where we all dwell, the honeymoon gets over much too soon. That's when the (sometimes unreasonable) demands take over and you know it's time to wake up and smell the Kool Aid. You start questioning every choice you've made and wonder if karma's getting back at you for dropping your brother on his head while he was a baby.
[Investors are not so very hard to come by. But as it is with things that come too easily, there is always a catch.
Lapping up investor attention and money is what start-up dreams are made of, and given the FOMO (fear of missing out) mindset of the current venture funds collective, they are not so very hard to come by. But as it is with things that come too easily, there is always a catch. In over two decades of my experience as an entrepreneur, I've come across, I believe, every kind of investor group. Each of them comes with their own set of challenges and advantages, and some are certainly better than others.
A lot of bright young minds are opting to start their own businesses right out of college, armed with stupendous ideas, optimism and resolve. All great things. But none of which make up for real-life experience in tackling strenuous situations and facing failure.
So in an attempt to share my insights with the next generation, and to make sense of the investor species to an extent, listed below in no particular order are the different kinds of angels and VCs that have spiced up my entrepreneurial journey.
1. The Trust Fund Babies
Born with a silver spoon, the trust fund babies are, you guessed it, a bit spoiled. They demand your attention, wish to be paraded around and spend their spare time polishing up appearances (swanky gizmos and slick websites). They need an independent business (read: "start-up") association to flaunt in society groups and you need their easy money. If you're not really looking for mentorship, it's a win-win for everybody.
[Trust Fund Babies] need an independent business (read: "start-up") association to flaunt in society groups and you need their easy money.
2. The Private Equity Seekers
The brotherhood of professionals with high salaries and even higher ambitions. The private equity seekers look at the "spray and pray" HNI investors and ask "why not us?" They have an equally good, if not better, education, years of corporate experience and an extra chunk of money lying in the bank. They believe in the power of the individual, so when they come together in groups of 10 or more to fuel budding start-ups, they make sure they make those individual voices heard. Being the self-made successes that they are, they are also somewhat control freaks. Much like in the case of polyamory, it leads to chaos, distraction and grief for everybody.
3. The Prenup Partners
The ultimate catch, prenup partners are the proverbial beauty/brawn with brains. They are charming, intelligent, and not only have all the answers, but also ask the right questions. They seduce you, promise you the moon and empower you to achieve your full potential.
In return, they ask for a prenup. An airtight contract drafted by an army of lawyers that not only allows you no alimony payments, it also lets them walk away with custody of your baby -- you know, in case things turn sour. But since you're smitten, you sign that silly piece of paper, hope for the best and get back to your IPO daydreams. Make no mistake, these guys are some of the best out there and you're lucky if they are ready to back you. But make sure to do your due diligence to protect yourself from any future disasters.
An airtight contract drafted by an army of lawyers... not only allows you no alimony payments, it also lets them walk away with custody of your baby
4. The Commitment Phobics
The eternal romantics. They are in love with the idea of love, but don't have the grit to brave heartbreaks. They make huge promises but when it's time to sign the dotted line, they invariably fall short. Their own lives (businesses) are snared in such turmoil (market fluctuations) that even though they might want to tend to your needs, they can't. In the meantime, you build yourself castles in the air and start scaling up plans that eventually fall flat for no real fault of your own. It would be wise to stay away from commitment phobics of the investment world. Look for these warning signs and if you spot them, run in the opposite direction:
(i) No social media presence: They're not on Facebook, Twitter and even LinkedIn. The URL on their business card leads to an obscure website with no proper contact address.
(ii) A strong reluctance to associate with you publically: They won't give out quotes, don't want press releases and don't even want a mention on your company's team page. Treat this as clear indication of cold feet waiting to happen.
In the end, after all is said and done, simply remember that like every other thing that you do in life, or perhaps even more, a business must be built upon a sound foundation of ethics and principles. And that unquestionably includes the source of your business capital.
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