You’ve got the dream and the vision to make your business happen. You’ve got a solid business plan and plenty of experience in your field. Now, you just need an investor.
When someone comes along who is willing to throw money into your company’s coffers and support your plans, you can and should celebrate. Just don’t forget to pause, take a deep breath and make sure that this is the right investor for you.
Not all investors are alike. Once you’ve made a pitch and investors have responded positively, here’s what you need to consider:
- What kind of investment is being offered? Is this a debt security investor who will need to be paid back whether you’re making a profit or not? Is this an equity investor who only takes a cut if you make a profit?
- Does the investor want common or preferred shares in your company? You have to be careful how much control you’re giving up over your own business.
- What’s the liquidation preference being offered? A lot of entrepreneurs build businesses to sell them for a profit later. Make sure that you understand how that profit-sharing will work. Other you may be very disappointed down the road.
- What covenants are you going to have to make? You can promise the sun, the moon and the stars to an investor — and you can bet those promises will be in writing. Make sure that you’re comfortable with delivering on the promises you make.
Business development doesn’t start and end with business formation. At each stage of your company’s development, an experienced advocate can help you avoid common mistakes so that your company can thrive.