7/06/2014

Startup Investor Money Always Comes With Strings

As an Angel investor to startups, I'm still surprised to find entrepreneurs who expect investors to give them money, and then disappear into the sunset. Would you do that if it was your money? If the entrepreneur wants total control of their own venture, with no one looking over their shoulder, they should work within the limits of their own resources, a process called bootstrapping.

Angel and venture capital money always comes with strings attached, starting with the obvious ones outlined in the term sheet for the deal. These normally include what percentage of the company the investor now owns, how and when tranches of money will be delivered, and even how and when you can sell your own shares (liquidation preferences).

Finally, entrepreneurs should never forget that investors really believe that they are there to help (not like "I'm from the IRS and I'm here to help"). In fact, they usually invest because they have extensive experience in your business domain, often have strong convictions on what it takes to succeed, and probably would like you to do it their way.

In any case, your startup is now part of some investor's portfolio, so you need to treat the situation like reporting to a new boss, and not like a new freedom. That means listening to investor expectations, communicating regularly and effectively, and assuming that all your efforts will now be monitored in the following ways:

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