Starting a business is an exciting time. You have your idea, your business plan, and now all you need is some capital to get it going. While you will probably spend a significant amount of your time and energy trying to convince investors that you are a great, low-risk investment opportunity, you need to think about your own financial risk. Here are seven financial funding risks that you should be aware of.
Giving Up Too Much of Your Company
Usually, venture capitalists will invest in your company for a percentage of ownership. One of the worst mistakes a start-up could make is to give too much of your control away especially if it means giving them control over your business’s bank account. Understandably, you will have to lose some ownership power, but remember that you got into your own business so that you could be in control, don’t let others take over.
Choosing Investors that Aren’t Any Help
While you want to maintain a good portion of your company, you also want to find investors that can help you. Many times, good investors have a network of people that can help your business grow. You should be able to go to them for expertise and advice. Don’t choose someone who will ignore you and then get angry if things aren’t going well. It’s a delicate tightrope, so due your due diligence on whoever the prospective investor is.
Choosing Investors Who Are Too Involved
Advice and input is good, but having a back seat driver is not. Investors should not be so involved that they interfere with business. If they seem overly eager to change your product or change the business plan, accepting their capital may be too risky.
Avoiding Friends and Family
People often think that asking their friends and family for money is a bad idea. They feel too embarrassed or uncomfortable. The truth is that almost half of investors in successful start-ups are family and friends. Don’t ignore them out of pride or discomfort, but do be aware of the many potential problems.
Moving Too Fast
Building a business is a lengthy process. Don’t rush into anything too quickly. Many new start-ups sprint so fast that they end up falling flat on their faces. It may not be the best idea to quit your job immediately or to rent store front or office space right away. Take time to research and plan every step along the way.
You shouldn’t put all your eggs in one basket, as they say, even if that basket is a sure thing. Putting up your home, car, and first child as collateral is not a wise decision. Many successful businessmen have failed at their first attempt. Give yourself some room to land if you are to fall.
Not Counting Emotional Risk
Starting a business is an emotional process, as is taking loans from family and friends. Don’t discount the idea of emotional risk. Will your relationship with this investor be able to withstand if the business is to fail? If the answer is no, it isn’t worth the money. Financial risk is part of any entrepreneurial endeavor. Be wise and work hard to build the company you want.