Dear Professor Investor, I've been offered investment money but I don't know if I should take it? Any advice?
Leslie from NYC
If you are having doubts about taking the money then don't do it. The reality is that an investor will often come when you are succeeding and there is room for a lot of growth. If that's where you are now, awesome. Accepting investment money is a lot like getting married: you had better be prepared to live with each other for years, be ready to make their priorities your priorities and, most of all, respect their opinion and input. If you are not prepared to do all three, don't take money from an investor.
If you're thinking that you don't need their investment, you could either increase the amount you would accept or lower their potential stake to a level that makes you feel comfortable. You do not have to accept their term sheet, as there is always room for some negotiation. If there isn't, then they probably aren't the right investor for your business anyway. Just remember a term sheet is about way more than just valuation.
If your recent sales are enough to generate a longer runway while you go out and get more sales, then definitely don't take the money. The cash you receive from your customers and your sales say more than a single investor's confidence could. If you can raise capital from crowdfunding (e.g., Kickstarter), then go that route. Crowdfunding doesn't dilute your equity, and it gives you access to user feedback.
There is nothing wrong with declining an investment request. Chances are it won't be the last offer. If your product truly is a great opportunity, others will notice and offer you investment money. Turning some down won't sour that potential.
Notwithstanding the above, you should always think twice before turning down capital, as it is rarely available when you really need it. Before turning away an offer, think long and hard about the following three questions: Will this money accelerate my growth? Will an injection of capital allow me to expand revenue greater than cost? Will giving up a small piece of the pie (i.e., equity in your startup) result in the remaining slices being worth 10 times more? If your answers to these questions are 'yes,' then revisit your reasons for not wanting an investor. Perhaps it's not them - it's you?
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