2017-12-05 00:00:00InvestorsEnglishLearn about the situations when it's in your best interest to turn down investors who want to finance your business.https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/12/Professionals-discuss-investors-for-small-businesses.jpghttps://quickbooks.intuit.com/ca/resources/investors/small-business-investors-rejection/When Is Turning Down an Investor a Wise Choice?

When Is Turning Down an Investor a Wise Choice?

4 min read

For many small business owners and entrepreneurs, getting offers from investors is a dream come true. Your business gets an influx of cash that you pay for in equity instead of going into debt, giving you the opportunity to expand more quickly with less risk. Even though there are some huge potential benefits from accepting an investment offer, it’s not the right choice for every business. Here are a few situations when it’s wise to hold off on accepting investments in your business.

You’re Still Working on the Concept

If you’re getting investment offers despite not having a minimum viable product that has proven successful yet, it’s better to figure out the product before considering investors. When you bring investors on board, you’re giving up some of your control. This makes it more difficult to switch course if you decide to adjust your original concept and go in a different direction.

Another important consideration is the offers you’re going to get at this stage of the game. When you’re still developing your concept and it doesn’t have a track record of success, investors take more risk and want a greater share of equity in your business as a result. If you keep bootstrapping your business until you have a successful product on your hands, you can expect better investment offers and you’re going to be in a better position to negotiate. If your concept becomes wildly successful, you’re going to be glad you didn’t give up a chunk of your business early on.

You’ve Only Received One Investment Offer

It’s good to be patient when you’re dealing with investment offers. If one investor is willing to give you money, it stands to reason that there are other investors out there who feel the same. You don’t want to jump on the first offer you receive when another one is right around the corner.

Negotiating can also be a challenge when you only have a single offer. If an investor knows they’re your only current option, there isn’t much incentive for them to negotiate with you. Once you have multiple offers on the table, you can use those as bargaining chips to get better deals.

Remember that just because you turn down an investment offer for the time being, it doesn’t mean you’re ruling that offer out completely. You can stay in touch with the investor and renegotiate with them in the future.

You Don’t Mind Using Other Funding Options

Investments may be one of the most popular ways to rapidly expand a business, but they’re far from the only funding method available. Consider the advantages other funding methods have, and you may find that one of them works better for you.

The bootstrapping route, where you pay for your business with money you’ve saved and reinvest profits back into the business, is a great way to stay in full control of your business and avoid any debt. Since funds are more limited when you do this, it can take longer to grow your business, but with a profitable concept, you can steadily expand.

If you don’t mind borrowing money, you can finance your business with credit cards or loans. Credit cards tend to have higher interest rates than loans, which means they’re best as a short-term financing option. Business loans have a lengthier application process and lower approval rates. You’re taking more of a risk with these methods, especially large business loans, because you’re still responsible for paying back what you borrow, even if your business proves unsuccessful.

You Want to Retain Full Control

If you like being in full control of your business and running it as you see fit, then an investment offer isn’t the right fit. Investors don’t typically just hand over the money and let you take it from there. They may want to play a part in major decisions, and you must keep them informed of any significant changes in the business. The amount of power your investors have depends on the deal you make with them. Venture capital firms can usually force you to hire people or make changes if they believe it’s the right move, whereas angel investors don’t have this power but can still try to insert themselves into the decision-making process.

Besides the control aspect, there is also quite a bit of pressure involved once someone invests in your business. Angel investors look for opportunities to score large returns on their money. If they invest in your business and it fails to reach the kind of growth they want, expect to hear about it from them. You may find yourself between a rock and a hard place if your vision for your business isn’t bringing the results your investors are looking for.

Despite the disadvantages of having investors in your business, there are plenty of situations where it’s the smart move to make. If being the first to market is crucial or your product requires you to establish a large customer base to be successful, you should be looking for investors. In other situations where you can get by without investors and the offers aren’t blowing you away, play it safe and wait.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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