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