Picture this. Your startup is finally getting off the ground, you’ve put in the hard work and you’ve secured funding from an investor.
But now that same investor is calling you for updates every morning and giving you advice you might not have asked for. On the other hand, you’ve got an investor you haven’t heard from in months. One isn’t better than the other, but it is important to decide on the level of investor involvement you want in your business early on - and ideally before cashing that cheque.
We know what it’s like when you’re offered a large sum of money for your business - it’s hard not to jump on it immediately. But before signing on the dotted line, it’s crucial you sit down with potential investors and make sure you’re singing from the same hymn sheet.
Where there’s a misconception is that level of equity equals level of involvement. But there are so many factors that influence an investor’s decision to be involved or not outside of that, including time limitations, personal career goals, and external motivations.
Throughout the years we’ve pretty much seen it all: investors who want to be involved in everything including what colour you paint the walls, and investors who just want their revenue update at the end of the year. So, we’ve created a list of pros and cons on each type.
A lack of investor involvement can lead to a disconnect in expectations for the business and decreased learning opportunities for you as an entrepreneur, so the pros to a highly involved investor are substantial and include:
Many angel investors started as entrepreneurs and take great pride in sharing the lessons they learned. An investor who wants to spend time mentoring you is an extremely valuable asset. The more that they’re involved in decision making, the more advice they can give you that is specific to your needs.
Your investor probably (well, definitely) knows other investors and invaluable industry contacts. If they’re involved in the decision making process, they’ll be more confident and passionate about sharing information with their contacts and building out your business network.
- Deal making
Let’s face it, your investor’s name may carry more weight than yours at the start, and that can get you in front of the right people. They have established relationships with other investors and professionals, and those contacts are more likely to listen to what they have to say and consider potential deals put forward. Look at it like a math problem, the more involved and invested they are, the more predisposed they are to growing the business and seeing it succeed.
But with every blue sky, there’s a rain cloud somewhere. Cons to investors who want to be highly involved include:
- Protective conflict
Naturally, you have a clear vision of what your company looks like now and where you want it to go, and you’re deeply invested in that after (likely) years pouring blood, sweat and tears into it. Highly involved investors who offer what you might class as unsolicited advice can cause conflict if their vision doesn’t line up with yours.
- Overwhelming the table
We’ve all heard the phrase “too many cooks in the kitchen” and that can and does happen in investing too. When you have too many people providing input on every decision you make it can be difficult to come to a consensus.
- Micro managing the money
Since they’ve put a significant amount of money into your business, it‘s natural for investors to want to know how that money is being used. However, there’s a fine balance between investors having a high level overview of costs and wanting to know where every 50 cents is going.
Having investors who give you more breathing room and runway means you have the independence to shape the future of your business and have more control over the decision making process. It also affirms that they trust you as an entrepreneur to make the right decisions on their behalf - quite a confidence boost if you ask us.
Ultimately, what’s important to remember is that if there are red flags on the level of investor involvement before you accept that cheque, you have the right to move on - the next opportunity is just around the corner, trust us. At the same time, try to be open to receiving advice from your investors. They’re likely to have a lot of wisdom they can share with you from their experiences as fellow entrepreneurs.
So, how involved are your investors? Let us know in the comments below.
Valhalla Angels is one of Canada’s most active angel investment groups since 2003 with member locations in Calgary, Edmonton, Kelowna & Vancouver, and recently adding Saskatoon and Regina.