Most startup founders take any investor to help them run the business. Indeed, raising money is a difficult task for early-stage startups. Thus, whenever money is offered, it is our nature to accept it. However, you should always be careful. In business, nobody is genuinely nice. Your angel today may turn to be the devil tomorrow!
Indeed, predatory lending could be threatening as your biggest competitor. First and foremost, your startup is in debt. But things can get even worse when you do not have full authority to handle your startup’s finances. Even though they lend you some money, it may not worth it.
Here are four warning signs of bad investors. If your soon-to-be investors have the following signs, you should turn them down and seek for another alternative lending sources:
They want full control
This kind of investors really want to be part of the journey. With many terms and conditions on the offer, it will end up to make them take the full control of your startup. Usually, they offer a massive paycheck that you can’t resist. But hold on, get some help from your lawyer friends or relatives to vet through the offer.
Yes, it might be hard for you to reject the offer, especially when you have no idea how can you continue to build your startup. However, when you are accepting this investors’ offer, it seems like you lost your startup to them. You are basically selling the startup by giving them your rights to autonomy. Think deep.
They want quick and high returns
Honestly, most investors only care about the money. They lend you some money because they want to get more. Look through the payment schedules, and consider whether it is unobtainable or not. If the business funding methods are impossible for your startup, you better off looking for other investors. Search for more tolerant investors who can offer more flexible payment schedules.
They have bad reputation
Always ask your potential investors about their long history of company buyouts, hostile takeovers, and other business dealings. Do some research about what they have done. They could be had some unethical and troubled business in the past.
Also, find out whether the investors has a tendency to buy out and gut your startup. You could be their next victim, as they are naturally a downright predatory. Remember, the less ethical they are, the less you should want to take their investment.
They are doubtful consultants
Every startup founder hopes their investors are good consultants. But some of them really are poor quality consultants. Listen to people’s testimonials regarding their experiences and advices. If you never hear anything good about them, do not let them make a negative impact in your startup’s management.
Of course, you do not want someone force you to make changes you don’t want to make. If you already feel bullied by the investor in the first place, let them go. Rejecting investors may be a hard thing to do, but on the other side, it may be a wise decision.
Next read: Why Startups Should Pay More Attention to Design
Article contributed by Startup Jobs Asia‘s Team.
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