Investors: Angels or Devils in Disguise?

First let me start by saying that this is not a blog about bashing investors, but rather an informational tool to share some insight and hopefully help any business owner considering a Venture Capitalist for additional funding. Let me be clear when I say I am not expert on the matter; however, I did want to shed some light on a few things I uncovered in my research last week.

THE EXPERIENCE
As a small business owner, I’ve often heard professionals say that the best time to obtain funding is when you don’t need it. It just so happened that I was introduced to an investment banker at a recent networking event. He wanted to hear more about my business and so we exchanged information and setup an appointment to speak face-to-face. Since I didn’t know much about investing, I decided to do a little digging on my end before the meeting. I searched the Internet and came across some firms that “specialize in connecting small businesses with investors.” I filled out the information request for two different firms and immediately received two responses. Both wanted a business plan, which I had; however, I wasn’t ready to hand it over (all business owners should want to protect their intellectual property). While my business plan did contain a non-disclosure agreement, my better judgment told me to take things slow. Both companies shared the same suspicious behavior—more money.

THE RED FLAG
I may be green to the subject of investors, but I’m not stupid either. As a small business owner, I was almost offended at the fact that they would undermine my intelligence; yet, like many other entrepreneurs, I wasn’t sure when to draw the line between paranoia and just plain common sense. Thousands of us get caught in the same trap everyday. Trust me when I say that any investment firm that asks you for money up front, just for the sake of getting you in front of more investors, is wearing the red devil suit—don’t fall for it.

SEPARATING THE GENUINE FROM THE FAKES
There will always be companies that will try to make a quick fortune off of your need for capital; however, there are things you can do to try and weed out the bad apples. My advice:

Try it on your own: No one believes in your business like you do, and Venture Capitalists often want 70 percent or more controlling interest in your company. If you ask me, it’s not worth the hassle to have someone else reap the rewards of your hard work. Even with shaky credit, it’s still possible to obtain a SBA loan. You may receive a higher interest rate, but if you know your product or service will get you where you need to go, it may be worth the risk—what’s more, you won’t have to give away any part of your company to do so.

Meet face-to-face: If you can’t go it on your own, try and meet with your investment contact face-to-face. This helps to establish rapport and further presents the expectation of accountability.

Do your homework: There are a lot of good resources to help you find information about investing. I recently came across an informative article on Work.com: Guide to finding Venture Capital. The author, Daniel Kehrer, points out several reputable resources for finding a Venture Capitalist including, the National Venture Capital Association, the National Association of Small Business Investment Companies (NASBIC), and Small Business Investment Company (SBIC) financing.

I hope this helps. Stay Smart.