Putting You First is Not Selfish
Every entrepreneur has ups and downs. Their share of failures that shapes them for eternity.
My failures are numerous and I have studied the failures of many others in order to make new mistakes rather than repeat avoidable ones. The way that you are raised has a deep effect on how you deal with people, especially the investors that were willing to take a chance on your idea.
I always thought that my investors were going to be there for me even if I failed because they were betting on me, not a specific idea. This in my mind meant that if the first venture failed, they would be there to support the next one. It meant that they invested money that they could afford lose and it also meant that they would play a role in helping to grow the venture, smart money is the common term.
I was wrong.
Raising seed capital is very hard and you put your reputation on the line. It is easy to rush to accept capital so that you can focus on your real goal of building a company but it is a mistake to not raise money from the right kind of investor.
What is the right kind of investor?
The right kind of investor to raise seed capital from is one that fits the following criteria:
- Only risking capital they can afford to lose
- A seasoned angel investor
- Committed to helping the business grow through relevant introductions and/or advice
What about friends and family?
- Close friends or family members who are not going to hold a loss against you or ask back for the money years later if the venture fails
- Only risking capital they can afford to lose
Some people will tell you that they pass the above criteria but then only time will prove that to be true or false. You have to decide whether or not to believe them.
Will investors be there for me if I fail?
The biggest wake-up call for me was when our last venture failed and we were struggling to pay our bills. At the time, my two children were 3 and 2 years old so it really hurt to be struggling financially and I took whatever consulting opportunities I could scrounge up while depending on my parents, two close friends, the government and eventually accepted varying jobs until I landed something that actually kept us afloat while the debts went unpaid.
One investor who could easily have afford to assist the month when we risked being evicted made it clear that he was not going to help. This period was a test and would make me stronger for having to dig myself out.
All I could hear was that someone in the position to help little children was not willing to. I was taught that even if you did not have much, it was always the right thing to help someone in a tougher situation than you.
Maybe that is why my parents never became rich like some of the investors that I had raised capital from.
Almost none of my investors reached out after to ask how we were managing, how my children were doing or how we were managing to cover bills. Quite a few however kept asking how I was going to recoup their investment and grow the company.
Eventually I got so upset that I laid into one of them and said that there was no personal guarantee or any guarantee so stop asking me about a dead company and next time, ask me about my children instead.
Seeing that side of some of my investors taught me valuable lessons about raising money from the right people and making sure that you take care of yourself before anyone else because when times get tough, no one but your family even cares.
Are all investors the same?
Of course not.
You cannot generalize based on 8 or 10 people but you can learn lessons from each interaction. Now I know what to look for in an investor, the questions to ask and how to deal with my previous investors who showed no compassion for my family.
My understanding was that angel investors in the USA, after losing on a deal where they like the entrepreneur’s work ethic and thought process, ask “What are you working on next?” and cut another check.
I clearly had not found any of those angel investors for my last venture.
What happened to your old investors?
I was raised to be fair and so even though I had no legal obligation, I created a new venture and gave the deserving investors some equity in the venture so that they could recoup their capital and even make a profit, with no capital required of them.
Some people think I am crazy for doing that but I want my reputation to simply be that if you invest capital in one of my ventures, you will ALWAYS get your money back, with fair interest, even if it takes years and it is from a different venture later on.
Moral of the Story
Do not be quick to accept every offer of investment and make sure to pay yourself first, actually saving the money and not reinvesting it all in the company, because if and when failure comes knocking, your investors are unlikely to help or even care to help.