Fundraising · Venture capital

Who are investors to stay away from?

Anonymous

August 1st, 2015

We always talk about investors to target but I'd like to share if there are any investors you've had negative experience with? We should be sharing this info just as much as the good. 

Andrew Lockley

August 1st, 2015

Instead of personalising this (which is generally unhelpful) far better to look at classes/types of investors which aren't ideal. Fundamentally, you've got to look at value-add. If money wasn't a factor, who would you bring on board? If the answer to that question is 'not the guy I'm talking to' or 'not my current investors', then you have a problem. Look for people who have some or all of : *sector expertise *relevant skills to add, and time to use them *appropriate contacts

Zvi CFA Senior Quantitative Analyst | Data Scientist

August 2nd, 2015

You want to stay away from people that: 1. Are "interested" but won't tell you what they need to see before they write a check, but ask you for a lot of information. Until you know how they make investing decisions, you're just wasting your time. 2. People offering unrealistically high valuations: These folks are just on a power trip, but are unlikely to actually invest. 3. VCs with an specialty that doesn't pertain to what you're doing. VC valuations are low, but they make up for it with the help they provide. So VCs that can't help you aren't worth it. 4. Amateurs that want a major role in leading the company. 5. Competitors: Mergers make sense, but often a competitor just wants your key IP. z

Lonnie Sciambi

August 2nd, 2015

One of the biggest mistakes entrepreneurs make is not doing sufficient due diligence on prospective investors.  It's way more than just bringing a big check. If they invest, they will be your partner for a looong time.  You want to know who you are going to working beside.  

First and foremost, are they folks who you can work with - i.e., how's the chemistry? What kind of companies/industries have they invested in? Have you talked to any of their investments? What was the investment process?  What kind of due diligence hoops did they have to go through?  Have they brought value to the company since they invested?  How?  How much are they involved in the company's operation?  What's their review process?  How frequently?

Just a sampling of the right questions to ask, but an example that you have to ask hard questions.  It's more than just a check!  It's a partnership!

George Lambert Interim CTO - CTO's for Hire

August 1st, 2015

People who might be willing to spend what to them is a small amount of money to protect other money that they have in an industry.  There is a risk that someone could invest in you simply to change your direction or remove you from their competitive landscape. 

Anonymous

August 4th, 2015

One resource for entrepreneur feedback on investors is: TheFunded.com

Neil Gordon Board Member, Corporate Finance Advisor and Strategy Consultant

August 3rd, 2015

There's no equivalent of Angie's list, as raising capital is not like calling a plumber. Due diligence is best done as part of your overall networking effort; ask around for advice on who to meet; for those you meet, ask what others think about them.

Keep in mind that one company's bad experience might be a matter of circumstance rather than some other factor related primarily to the investor.

Kenneth Larson Retired Aerospace Contracts Manager, MicroMentor Volunteer and Founder "Smalltofeds"

August 6th, 2015

When seeking investors it is not so much knowing who to stay away from as it is knowing the impact an investor may have on your or your organization.

When I owned my own businesses and consulted to other small business owners I stayed away from angel, venture and private investors for two reasons:

(1) They wanted too high a ROI

(2) They wanted too much control of the operation.

According to the Colorado Capital Alliance, surveys of such investors show that:

1. They are seeking companies with high growth potential, proven management and sufficient information about the company, its management team, and its market to be able to assess a company's value.

2. On average, they expect 10 to 15 percent above of the S&P 500 return on equity.

3. Typically, they invest in companies seeking between $50,000 and $1,000,000.

4. They generally prefer to finance manufacturing or product-oriented ventures, especially in the high-tech fields.

5. On average, they are 47 years old, have a postgraduate degree, and management experience in an entrepreneurial venture.

They may ask for at least ten to twenty times return in just five years. For many angel investors, it’s not just about the money; they want to actively participate in developing your business. They want to act as a mentor and sometimes even to take an active role in managing the company. This often translates into the angel investor having a seat on your Board of Directors.

They are also highly interested in an exit strategy for a full return on their investment in your business. The closest thing to it is an astute business plan that calls out the specifics of potential ROI, based on sound planning and analysis.