Question: What are the hidden areas and factors that a small business-owner needs to watch out from while reaching out to investors and financiers? How can I protect my interests from highly aggressive investors willing to provide me financial support?
Answer: The basic mandate that a small business seeking investments should set for itself, is to have a detailed business plan substantiated with quantifiable data. The depth may not necessarily be gauged by the number of pages of the plan but the clarity of vision, resources and expectations.
The entrepreneur must maintain clear list of “haves” and “have-nots” to ensure that one is clear on what to expect from an investor. He must have a clear perception of whether he is looking only for capital or business expertise as well from the investor.
In addition, all key business functions must be well described: team members and backgrounds, sales & marketing plans, financial projections.
Foresight must also be employed to identify the problem areas like cash-negative positions that may arise in the business and there are a number of precedents when such unforeseen situations led to the failure of a business plan.
The entrepreneur must not feel threatened in projecting one’s strong business capabilities such as IT, automation or manufacturing process to investors. Intellectual property can be shared after non-disclosure agreements (NDA).
Be ready to face skeptical financiers in banks or lenders who don’t have expertise in your business area.
Please understand that only about 1 in 100 business plans gets funding. So there are many business plans that are not upto the mark. VCs have to be conservative because they are the guardian of investor funds and have to protect their downside risks.
The way to go in protecting one’s interest with investors would be to maintain transparency in milestones and expectations from the business. This should be further enforced by keeping the terms and facts of the agreement documented as far as possible.
Ventures Blog by 7Avenues 