The well-known storyline looks something like this: innovative-but-broke entrepreneur comes up with an amazing idea, but can’t fund it. After teetering on the edge of bankruptcy, she meets an investor that believes in her and in the dream, and funds the endeavour. Along the way, the investor also provides insight, ideas and introductions, all which are invaluable for the budding entrepreneur. A few years later, the business is sold for tens of millions, and everyone is happy.

The typical story, however, is often quite different. There are a thousand things that can go wrong, changing the narrative from the above version to the version where the business shuts down and the money is lost. (Shameless pitch: our role - and our goal - at Kaizen Consulting Group is to minimise these obstacles, and give the business the best chance of success).

But what do you do when the investor is the obstacle? I’d like to take a minute, and highlight three instances where the investor - usually unintentionally and inadvertently - becomes the impediment. 

A note to investors: As an investor, you’re probably the last person to be expected to limit the success of any venture. And, in most cases, you probably aren’t. Certain actions, though, however well-intentioned, can backfire, and slow down (or stop!) growth in the startups you’re funding. 

Firstly: keep your financial promises.

Of the three, this may be the most common issue. A pitch is made, terms and commercials agreed, investment confirmed…and then nothing. The entrepreneur is unsure whether to nag for the money and risk upsetting you, or wait silently and hope you haven’t forgotten about her. 

On the face of it, this is already a problem. The business needs the funding, it is time-sensitive, and there is no clarity on when things will change. What exasperates the issue is the knock-on effect that will most-likely happen in good businesses*: the next required cash injection will be a higher value than initially planned. Why? Cashflow. By not getting the first funds in on time, product roll-out slows, marketing is suffocated, and fixed/running costs stay the same, all while revenue (or revenue supporting activities) are on hold. Result: six months later, she needs more money to achieve the same goal. And for you, as an investor, that’s not good news.

On a related note: if you are having trouble with funding the business, let it go - whether all or part of it. If you had committed to $500K for a 10% stake, and now money is tight, take 5% at $250K and let the business continue, rather than grind to a halt due to a lack of liquidity.

(*as a general rule of thumb: good businesses are the ones that are relying on the money to take steps towards making money. Bad businesses tend to invest in areas where the utilisation plan for funding is vague, unclear and/or haphazard. As with all investment advice, there are exceptions to this rule too.)

So, what can you do? Don’t make promises that you know you won’t be able to keep. Sure, it’s nice to lock in a significant share for a lower price, but - if you commit the money - release the funding. If you can’t, please be transparent around that too. Entrepreneurs and startup founders shouldn’t mind hearing ‘No’ - so no need to sugarcoat anything.

Secondly: clarify expectations.

There probably isn’t a better way to lose money than to give it to a startup and hope for the best. That’s why most investors are quite insistent on being kept updated with the situation of the company and progress made. That’s good, always.

What’s not good is when reporting and updates become a part-time (or even full-time!) job. If the person you’ve trusted and taken a bet on doesn’t get the time to execute, it’s your money that’s being wasted. When does this happen? If you’re insisting on weekly meetings, where you want to see reports, statistics and data, you’re effectively asking them to allocate a minimum of 20% of their time to non-growth related activity. You need to ensure your money is being spent wisely, but your money is buying this person time, and time needs to be spent in the right areas.

As a suggestion: when negotiating terms, make it clear what your expectations are with regards to reporting and meetings. If you want daily updates, make that known. If you need weekly meetings, and monthly reports, make that known. If the entrepreneur commits to a frequency, hold them to that. But please, ensure that the entrepreneur looks forward to the time she gets with you, not resents it.

On a related side-note, make life easier for her. If your current setup has accounting, inventory or HR software (as an example) that she can use, give her access. Let the system do the reporting for you, that’s probably not her strength anyways. If your accountant can spare two hours a week to look over her numbers, ask them to. If you need to, keep a small fee on the startup to pay for the support services, it’ll be a good investment if it frees up her time.

Thirdly, and this is a delicate one: know the game.

This is probably more for individual investors, rather than firms: before you invest, become familiar with what you’re putting money into. The first fault of this misunderstanding is on the entrepreneur, when they sell a vision without explaining the detail. The second fault is on the investor: if the business is building a new technology, understand the development. If it’s creating a new market, familiarise yourself with the landscape. Sure, the entrepreneur needs to know and work out the details, but arguably your biggest contribution to the venture will be the wisdom and experience you can bring to the table.

Make the time to learn the industry, don’t just go by business plans and figures. It’s impossible to build every eventuality into the plan, and the more you are aware of what you’re venturing in to, the better the chances you’ll spot potential problems, and the more applicable your advice will be.

Entrepreneurs are always going to be more trusting, more optimistic and in more of a hurry. That’s fine - in fact, that’s the passion and enthusiasm that you’re buying in to. There will always be obstacles along the way…don’t let your relationship with your new partner struggle due to any preventable ones.

About the author

Murtaza Manji
Business Strategy & Leadership Coach
Entrepreneur, award-winning business strategy coach, and international speaker, Murtaza Manji is the co-founder of Kaizen Consulting Group which he set up in the UK in 2011 before expanding to the UAE and the USA. The company has evolved significantly over the years with ambitious plans to expand further. His vision is to positively impact the countries the Group operates in by supporting clients to create lasting values and legacies.

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Murtaza Manji - Managing Partner of Kaizen Business Consulting Group Dubai
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