Go through the finances regularly with your investors to keep them updated on expenses and profits.
Who is an investor? An investor is an individual or organization that puts money into an entity such as a business, financial schemes, property, etc. for financial return or profit. The goal of an investor is to minimize risk through strategic analysis and maximize return. An investor could also buy shares or funds in order to hold them for a long time and sell off for profit after the capital has appreciated. Investors generally give money to a company, either on the short term or the long term.
It would however, also be correct to say that investment in a company may not be limited to money alone. An investor could also bring to the table other assets such as expertise or experience, relationship and the network industry, office space or facility, management of human resources, etc. A business owner must, therefore, be sure of what an investor is bringing as his net worth – both liquid and non-liquid assets, before bringing him or her on-board.
An entrepreneur, who is also a joint business owner, Emmanuel Oluwatosin, shares the lessons learned over time, from having an investor join his business:
- Be clear about what the investor’s fund will be used for. Know why you need the extra fund or loan. If this is not ascertained, there will be misplaced priority and the money may be diverted to something else.
- Ensure that the money you are raising is enough to push the initiative at least for another 18 months so you don’t have to worry again about funding the business.
- Ensure there is clarity on the agreement between you and the investor
when is the investor coming in?
what will be the sharing formula?
what if the investor misses a milestone? If an instalment of the payment plan is missed, there should be a default clause that should indicate the penalty.
- Get a lawyer involved to ensure that nothing is overlooked and everything is put down in papers to confirm that there are no future surprises.
- Be transparent: Go through the finances regularly with your investors to keep them updated on expenses and profits.
- When your business starts being profitable, always give your investor an update – on the amount, what the money is being used for and how the business is performing. That is important because in the future, you may need a bridge fund or extra cash and they are the first set of people you can reach out to.
Statistics do not favor startups – most disappear within the first five years. But with the right approach to partnership in business, not only will the business survive, it will thrive.
This article was carefully developed from Episode 53 of the Immigrant Life podcast. You can listen to the full episode here.