Choosing the Right Investors

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Choosing the Right Investors
Read time 1.9 minutes

Before I jump into this, I want to acknowledge that for many of us, we never get the luxury of picking our investors. I’ve been a founder before, struggling to raise, reading a bunch of people telling me to pick the right investor while I was struggling to get a single person to give me a penny. The idea of picking an investor was so absurd that I’d laugh off the advice.

The funny thing is that I ended up taking all the money I could get from anyone, and in the end, it was the death of my company. Failing to raise didn’t kill me; letting a bad investor on my cap table did.

So, I understand the hesitancy or eye-rolling when this topic comes up, but no matter how much you are struggling, you need to consider this. It’s hard to see why from your perspective, which is the reason that someone like me who has taken your journey can pass back this message.

So why does it matter?

An investor is like a co-founder that you can’t get rid of. No matter what you do, they will always be there, and they will always be influencing the direction of the company.

If you get an investor who is towards the end of their fund’s lifespan and wants to make 3x in 2 years. Then, once you accept that money, there will be nonstop pressure to hit metrics that will make a sale easier and then to start the process of a sale. There will be little focus on growing the business into something capable of an IPO like you might have dreamed of.

Investors will also be a key source of advice for you, and if they guide you in the wrong direction, it can be the death of your business. If you are five years in and they already have a 10x return. They might just be giving you advice that drives you toward an exit so they can cash out. This can again impact your ability to grow the company.

Even these examples don’t account for more extreme cases where VCs can vote you out of the company, use predatory terms, or take over your business.

So before you accept an investment. Even if you feel like you desperately need the money, remember that there is a cost to bringing aboard the wrong investor. For some, that cost is death.

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Onwards and Upwards,

Liam Gill