Advice to Start-ups Seeking Outside Investment

From Ryan Hagan:

As the final teams head toward pitching their ideas to judges and potential investors at the VT KnowledgeWorks Entrepreneurship Challenge on April 11, 2012, I would like to offer my experience with start-ups and seeking outside investment in hopes that it may be of value.

Ryan HaganBringing investors into your company can, and will, completely change the dynamic of your start-up.  If you've never done this before, you might not be prepared for the changes that are coming.  A bit of reflection on some important questions could take you a long way in your preparations.

First, you need to ask yourself if you're really ready for the commitment.  Up to this point, it's just been you, and possibly a few friends, with a big idea that is going to change the world.  Failure meant that some people were disappointed, but there probably wasn't much at risk.  Once you bring in the investors, though, that all changes.  You are now accountable for producing a return on that investment, and that can be a heavy burden.  Trust me, this is going to be hard and you will, at times, want to give up. The strength of your convictions is the only thing that will get you through. 

Second, you should ask yourself if you have the right team.  Is everyone on the team as committed as you are?  Do they all understand and share the same vision?  If you've had trouble motivating team members up to this point, you may hold hope that the money will make things better.  Unfortunately, the opposite is usually the case.  The money makes things exponentially more difficult.  The last thing you need to deal with is a team member with significant equity ownership that isn't pulling his or her weight, or is causing significant internal disruptions.

Finally, you should ask yourself if you are teachable.  While the primary goal of bringing investors into the company is funding, there's another great benefit that most business owners overlook: mentoring.  Most investors have been where you are today, usually multiple times.  They've seen the landscape, and they can help guide you through it.  Hang onto your vision and your purpose, but open yourself up to the experience of your investors.  Therein lies wisdom.

Ryan Hagan is a software developer who has led several start-ups that both sought and received outside investment from angels as well as full venture capital backing. He has kindly written guest posts for Handshake 2.0, most recently The Software Engineering Life Cycle.

Cartoon of Ryan Hagan by Plaid Klaus

Of further interest:
Becoming an Angel Investor
Angel Investor Guide to Blacksburg, Virginia

VT KnowledgeWorks is a client of Handshake Media, Incorporated, the parent company of Handshake 2.0.

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