Why investment could kill your startup
At the moment, you could be forgiven for thinking that investment is the only way to progress if you are a startup: Unicorns and record-breaking rounds fill the news. In reality, investment is a double-edged sword, and handled incorrectly, could end your startup. Here we’ll explore 6 key ways in which investment could potentially be damaging, and how you can guard against these issues.
The 7 ways investment could kill your startup
1) Delivery pressure: Getting investment is about making promises, building trust and then delivering on those promises. Having that added pressure from investors to deliver to an agreed schedule can ramp up the stress levels and inhibit your freedom to slow down plans or change direction.
2) Direction: Investors are, ultimately, there to make money. Their main interest is to increase the value of your company as much as possible to drive a 10x or greater return. You may find you come under pressure to pursue directions that don’t feel right to you, or to act in ways which don’t align with your core values.
3) Expertise: Getting ‘smart investment’ is vital — investors that also bring critical expertise. If you get investors without the right kind of expertise, you’ll end up wasting some of your funding on hiring expertise that you could have got for ‘free’ with your funding.
4) Throwing money at the problem: It’s tempting, once you have funding, to throw money at problems, which can actually stifle creativity in your company, and again, waste vital funds on things you don’t need to pay for if you apply some ingenuity
5) Growing too fast: The key to building a sustainable business is to ensure that you can scale your business at the same pace as you grow your customer base and revenue. Taking on more customers than you can handle can lead to reputational damage, low staff morale and even corner-cutting that could get you in trouble with regulators, depending on your industry.
6) Investors wanting to cash out: Just as you really feel you’ve got the wind in your sails and are within sight of all your goals, your investors could pull the plug and decide they want to cash out now.
7) Taking your eye off the ball: Raising investment requires massive effort and can take you away from your main job of running your company.
These 7 points are, of course, cautionary tales. Investment can be hugely beneficial, as long as you go into it for the right reasons, and with very clear parameters that you stick to.
