No thanks, I don’t want your money.
Last week, I about the critical relationship between a CEO and their board of directors and how to choose the right members - people who will be true partners with you.
Like too many things in life, this dynamic changes once there’s money involved.
Let me explain.
If you get investment from a venture capital firm, you’ll generally work with one partner during pitching. That person is the one you get excited about your business and eventually negotiate with on the level of funding and ownership.
You get to know that person well. And oftentimes, that person ends up on your board - great!
BUT, there are also situations where the partner you’ve been working with is already on too many other boards and assigns someone else from the firm to take their place - danger!
That person likely doesn’t know much or anything about your business and doesn’t share the same excitement about it.
Unfortunately, I have experienced this first-hand, and it’s not fun. I found myself “re-pitching” the company to the surrogate board member, and that person never really got the same spark about the business.
That’s why the good VC firms are the ones that assign someone to be on your board early in the relationship and tell you the person will be on the board for at least two years, hopefully more or until they have their exit.
Walking away from a VC firm that doesn’t seem the right fit is one of the hardest things to do in business.
Because. They. Have. The. Money.
And you need the money to realize all the great things you have planned for your company.
So, as a founder, you tried to find reasons to say yes to things when you should be saying no.
And investors are often trying to find reasons to say no.
So there’s a conflict.
The founder will basically do whatever the VC wants to keep their business moving when they need to learn to say “no, thank you” if the opportunity isn’t right.
Here are five warning signs that could signal walking away from an investment would be the right thing:
- Misaligned goals: If the investor's vision or objectives don't align with your company's long-term goals or values, it will lead to conflicts down the road.
- Dilution of control: If you believe the terms of the investment would result in too much watering down, it won’t be in the best interest of your company.
- Unfavorable terms: This goes beyond potential high-interest rates; restrictive covenants or aggressive timelines for returns are also red flags.
- Lack of strategic fit: Money isn’t enough. You should walk if your potential investor doesn’t provide strategic guidance, industry connections, or other resources that would genuinely benefit your company.
- Unsustainable expectations: While investment can fuel growth, ensuring sustainable growth is essential. Taking on too much investment too quickly can lead to problems with scalability, operations, or even market saturation.
Have a great week,
Peter
