It is the goal in most cases to get financing for your company, especially in the expensive world of technology and software development. You can get a loan from the bank, financing from business organizations such as Canadian Youth Business Foundation, ask family or friends or work with official investors. But regardless of who believes in your vision, all parties want a return on their investment.
This is why selecting an investor to work with and which type of financing to accept will be an integral part to the ongoing growth of your company.
When people take bets on your capabilities and brand it feels pretty awesome. With this honor, responsibility and expectations to deliver are paramount. This accountability is a great driver to keep yourself motivated to achieve, though along the way you will experience difficulties that will inevitably slow down progress or temporarily block your capabilities that you have to work around.
For example, the time it takes to figure out who your target customer is, getting your first paid users and developing your product to the state that the market will adopt your innovation so you can get traction in the market. In the world of innovation, this can take some time since your product may not fully solve their problem yet and will require some more development and conversations with prospective customers about how to refine the product.
The more you vocalize your needs, give feedback (good and bad) from customers and any other pertinent information you can give your investors from your day to day activities allow them to help you remove barriers and build trust with you. If they are not actively in the company, they likely do not have a clear picture as to what is truly happening.
You are hurting yourself by not telling them your challenges and what you need to succeed. Tell them what you are working on/toward and they will respect you and earn your trust. It can be hard to see tangible results when you are building a company in the early stages so you need to vocalize your strategy and what you are working towards, they will either support or give you advice if you are a bit off track.
The earlier you communicate your needs the better, for both sides.
It is easy to have big ambitious goals when writing a business plan and discussing growth and potential returns. Of course it is important to plan but the reality of early cash flows in most cases is that it can often take longer than everyone anticipated to get going. This is where your persistence, belief in the vision and trust with your investor is very important.
In tech environments, you may be selling an unfinished product to the market that still needs modifications before you can get any big traction and cash flow.
DO YOU NEED TO SCALE?
A risk for the active entrepreneur in the company is that you may lose commitment from early investors that no longer want to make contributions when it comes time to grow. Depending on your model, there is a good chance you will need a growth and expansion cash injection to get to the next level. The Business Development Bank of Canada offers these types of loans. Plan the long term right away and know where everyone stands with their commitment to the company and the long haul. This is important to whether your company continues to grow and how you will disperse equity to shareholders.
If they want out and you are only part way on the journey to growing a successful company, you have just put time in that you will never get back. Sure, life experience counts but if you can save yourself the hassle, do. Scaling a large company takes a lot of capital. Growing is expensive. How committed is your team? Nothing ever works out as expected in the beginning so try to ascertain where everyone’s’ head is from day one so you do not find yourself starting over again when you have a viable business model.
Once commitment is lost, parties are losing interest and if you do not own the majority of the company, you are in a vulnerable situation where you likely will have to leave and go start something new. The early enthusiasm of growing the company can easily disappear when the investors pulls the pin before things start to really get going. Equity in a firm that stops growing is not an asset.
IS YOUR INVESTOR EXPERIENCED?
Have they grown a similar company before? Make sure they have experience within the space so they are comfortable with the inevitable challenges that will come up and are realistic with timelines. Make sure you are compatible to work together so you can feel comfortable clearly articulating what is happening in the company.
Look to work with someone who has walked the walk in your industry with a background in what you are trying to build and achieve so they can accurately anticipate problems, know how to grow and scale and are committed to doing so with you from day one.
Before you take money from anyone, just make sure you know fully what you are signing up for and that the expectations from both parties are realistic and long term commitments are agreed upon. Taking a loan and making payments may be a better alternative for your situation so you can make the decisions financially for the company yourself or with your partners.
Choosing an investor that can mentor and invest simultaneously is an important decision to make when launching and growing a company.