Investors....the good, bad and ugly
So now that you have your new business up and running and things are going good and I mean really good, you think you may want to take on a few investors and become the next Facebook or Google or Apple. You have big dreams of taking your business public, to trade on the NYSE and to make a killing. It is difficult to find an entrepreneur who does not want to shoot for the moon and keep growing and evolving their business.
So after you realize that you want to take it to the next level, what is the next step. Hopefully you've spoken to your accountant and attorney to understand what you should be doing to make this next leap into growing your business. You want to review your shareholder's agreement to understand if you are able to take on investors and also what you may need to do structurally to your company to take on these investors.
Take some time to understand how you plan to ask your investors, how you will bring them into the company, what role they will play and what kind of return they will have on their investment. Are they simply an infusion of cash and they will get paid back under certain terms or are they buying a share of the business and everything that comes with it. This could include buying shares, voting rights, position on the Board or other perks for their investment. You may also decide to have a hybrid of both types of investor.
The good of the investor is that they are instant cash infusions to your business. They can help you to grow, change, adapt and make your business even more successful by adding much needed capital and debt restructuring for you and your company. Depending on the amount of investment, you will be able to expand exponentially and allow your business to grow.
The bad of the investor is that you are giving up either cash in your own pocket as you pay back the investment or you are giving up shares nd control over your own company. You want to make sure you haver a contract in place to ensure you each know what the expectations are of the investment and the role each of you will play.
The ugly is what happens when the investment turns sour or the parties have different expectations. The contract in that case becomes even more important as it is the only guide to resolve the dispute between you and your investor.
Rule of thumb is always consult your attorney and make sure you have a properly drafted shareholder's agreement and investment agreement to understand the ins and outs of your relationships with investors.