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7 Types of Investors to Avoid Like The Plague When Trying To Raise Capital For Your Startup

· Investing,Startups

I've recently been considering raising outside capital for my startup. My vision is big and I want it to be a global business. With a previous startup exit under my belt, I thought it was the right time to consider a seed round investment. Over the last few months, I have encountered unprofessional characters, time wasters and scammers. To help you, I created a list of the types of investors to avoid. Be bold. Be brave. Be careful startup Founders.

The Tire Kicker

These are the people that seem really keen to be involved. They look at your business like it is a car they want to jump in and drive away. To get the process started they kick the tires.

This involves them looking at your business plan, meeting with you a few times and sounding enthusiastic.
They will often talk your ear off about a lot of off topic subjects. Then they spend weeks, sometimes months kicking the other three tires.

What you realize is that at some point, if you want to "sell the car", you have to convince them to look inside the car and under the hood. If they only ever want to look at the surface of your business and are not interested in the nitty gritty, drive away!

The Wannabe Alchemist

This person will constantly tell you they are "the key to money". They have a syndicate or connections who always back their projects. They will maybe tell you who these people are to impress you. Then they will dangle that carrot in front of you and any time you want a bite, they will pull it away.

They seem to be able to sense that you have bought into their story and then make it more enticing each time you talk. When you give them everything they need to pass onto their connections, nothing happens.
You ask what their feedback was and they say they loved the idea. You try to organize a physical meeting or conference call. They are always busy.

You are promised gold but are left with vast amounts of hot air.

And when you finally make them show their hand, they get offended saying you "are trying to pressure them" and that "it doesn't work like that." The entire charade is a waste of time and does nothing more than to inflate the ego of the person you are speaking to.

The best thing you can do is tell them you are taking investment from someone else. Their reaction might suddenly change to, "I can't believe you are doing this after all of the time I put into this. My team were so close to closing a deal with you." But you know the truth. Move on.

The Twilight Years Time Waster

This is usually someone with solid business experience and maybe a background with a successful exit. You will hear about previous victories, war stories and possibly be offered some mints. This person is just happy you are in the same room as them and that they have someone to talk to. "How exciting, a fresh faced entrepreneur with a big idea!"

A typical conversation will revolve around which university they went to and what grades they got, what position they held for twenty years and the names of all their grandchildren.
But then they will wake you from your slumber by dropping in that they have a few million in the bank and not sure what to do with it.
They want some excitement in their life but their rigid, conservative ways and the idea they could lose their children's inheritance is too much of a risk to bear.

So instead of just telling you that they are not interested, they keep you on the hook for company. Gift them a box of tea and jog on.

The Great White Shark

This person will have a strong, alpha personality. They will probably drive a really expensive car, have photos of them with the President on their wall and brag about their massive network of high net worth individuals.

They will appear as the Queen of Sheba but before you know it will have transformed into Medusa.

This type of investor will often have a high IQ and use lingo that will confuse you. They will have a regal air about them and dress well. This is all a facade.

They will grill you on your numbers but when you ask for testimonials or which companies they have worked with, they dodge the question and flip it back to you. They love putting you on the spot but become uncomfortable when you ask them direct questions.

Their service agreement or term sheet will be unreasonable but when you do your proper due diligence of this and question certain items, they will make you feel guilty about the length of time you are taking and say that other Founders signed immediately with them. [This happened to me recently and it was a royal waste of time. That said, I learned who not to partner with].

Beware of any investor who rushes you to sign a contract and gives you a sense of FOMO. There is clearly a reason why they are doing this and when you sign, you will find out. Release yourself from their clutches and kindly excuse yourself. Then when they are not looking, run!!!

The Co-Founder

It starts out with an innocent conversation over a beer. Then it snowballs into, "if you need any help with this, let me know" before quickly becoming, "we should totally be co-founders on this!"

Having personally gone down the co-Founder path before a few times, you need to realize that if you are looking for capital, you are looking for capital, not a co-Founder.

The co-Founder investor will either have cash from a previous company sale or an inheritance and tell you what value they can bring to the business in addition to the money. The hands-off approach starts to drift into talks of Articles of Association and co-Founder equity splits (co-Founders are looking for a much higher percentage than investors and a hands-on role).

The best thing you can do is assert your authority and say that you are not looking for an investor that has a role as involved as a co-Founder nor giving away a stake as high as that would entail. Next!

The Lemming

Remember the 1990s video game Lemmings ? You had to guide a group of these cute little characters to safety or they would fall to their death. The Lemming investor is just like this.

They will wait until the very last minute to make a move. They will watch from the sidelines and just before your capital raising round is over, express interest.

As soon as other investors start backing you, they will follow fast. Also known as "The Sheep", this person suffers from extreme analysis paralysis, has a low attitude to risk and is known as a "laggard" in the technology adoption lifecycle (also known as the "product adoption curve").

The Puppet Master

This investor wants total control over you and your business. But they will tell you that you have creative control and can do whatever you want as a leader. If they offer a term sheet, review it with a lawyer very carefully.

This person might have been burned in business in the past and be looking to take their frustration out on you. Maybe they had an overbearing boss or investor. Now, you will feel their wrath.

The way to reveal the true motives of this type of investor is to show them the proposed structure of your startup and then present it as if you are happy and about to move forward. This investor will then reply with all the changes (and there will be many).

With the Puppet Master, there will always be strings. So cut your strings and exit stage left.

Thanks for reading! :) If you enjoyed this article, please share with your friends using the links below. Would mean a lot to me and it helps other people see the story.

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