Clinching investment from a venture capital fund may be seen as an endorsement of an entrepreneur’s abilities. But raising money is also fraught with risks.
A number of startups are discovering that a lack of clarity and improper rapport with investors can lead to promoters losing control of their companies or being forced to sell out too early for too little.
Ensure Alignment of Goals between both Parties
Experts are of the view that as more investors get tough in a slowing market, founders must do more to protect their interests by picking the right investor and ensuring there is an alignment in the goals between both parties. It’s vital for entrepreneurs to be choosy about whom — and under what terms — they accept funds from.
Here’s a checklist of the five most important factors that a startup entrepreneur needs to consider before signing on the dotted line.
Choosing the Right Investors
In 2000, when he first raised capital for travel portal MakeMyTrip.com, 43-year old Deep Kalra agreed to terms written on a paper napkin. “It turned out well, but I was very naive and for my next round, I did my homework.”
Founders must speak to companies that have already taken money from the investor they are negotiating with to understand how the going will be during tough times. While valuations matter, the investor offering the highest value is not necessarily the best.