Small Business Investor - Small Check, Big Headache
Small Business Investor - Small Check, Big Headache
I dont know if there is some sort of mathematical equation you can put to this, but it would certainly appear that the smaller the investors check, the bigger the headache they become to an entrepreneur.
You might think the opposite would be true, that smaller investors would only expect to play a minor role in the business while the larger investors would make all of the important calls. What youll find in practice, though, is that raising and managing small chunks of capital from small investors is incredibly laborious while the more manageable investments come from much larger investors.
Less Money = More Time
Smaller business investors seem to have disproportionately more time to invest than they have money. These are the guys who are putting $5,000 into your company and think theyre Gordon Gekko, trying to run the company like some big time investor. All this extra time that they have to manage these investments actually sucks the life out of your deal because you have to constantly manage their expectations to the nth degree of detail.
Certainly getting help from a small business investor to grow your business is a nice thing, but not if it involves being micro-managed to death over every decision. A good small business investor will understand that their role is to invest in the company, not run the company. You want their invested capital working for your business, not another pseudo manager to contend with.
Small Checks Take Longer
Raising smaller amounts of capital doesnt translate into reducing the time it takes to get a check. In fact, sometimes the smaller amounts take more time because the people writing those checks really cant afford to invest (read: gamble) that money to begin with.
They need to be certain of every last aspect of the deal to the point where they over-analyze the deal completely. Before you know it, youre jumping through all of these hoops over a few thousand dollars. Its a huge waste of time.
Even if you do manage to land these small business investors, you can be certain hes going to be on the phone with you every 15 minutes trying to get a status update on his investment. Hes got the time, and the investment is incredibly meaningful to his overall personal wealth. Youve become his living, breathing stock ticker that he constantly wants to see updated.
Big Kids Run Faster
Believe it or not, it actually takes just as long to raise larger amounts of capital as it does smaller amounts. Thats because the larger investors (the big kids) tend to have less time to spend on any one deal. They have lots of deals to choose from, so they have to get to the point quickly and make a decision quickly.
For an entrepreneur raising capital, this is the best thing in the world. Ideally you want as much flexibility with the capital that you raise as you can muster. You want an investor who pays attention to the important points of your growth, like monthly earnings, not daily expenses. Thats what youre there for!
Thats why a bigger investor is usually a much better option when raising capital. They can make decisions about the investment faster, they can fill up your investment requirements faster, and they can leave you the heck alone so that you can grow the company a lot faster.
Too many cooks in the kitchen
With fewer small business investors you also overcome the problem of too many cooks in the kitchen. Startup companies need to make lots of decisions very quickly and decisively. The company runs a lot better as a dictatorship than a democracy. The more votes you create by adding more investors the longer the process becomes to make a decision.
You can overcome this problem by giving certain small business investors voting rights and giving other small business investors the right to keep quiet, but dont kid yourself youre going to hear from the guys who dont have voting rights whether you like it or not. So the best antidote is to simply have less people at the decision table.
Less is More
As youre thinking about raising your next round of capital, dont think in terms of lots of small business investors with a little capital think in terms of one (or two) investors with a whole lot of capital. You dont score any additional points for racking up the greatest number of investors. If there are any points to be scored, its from getting as few investors as possible in order to get your requirements fulfilled.
When growing a new business, every moment of your time has an incredible amount of value. The more time you spend placating overzealous small business investors, the less time you spend doing what you all came there to do in the first place growing the company!
Wil Schroters latest book Go BIG or Go HOME How the next generation of startup companies think BIG, grow FAST, and dominate markets overnight is available at www.WilSchroter.com
Wil Schroter is the Founder and CEO of the Go BIG Network, the largest network of startup companies and entrepreneurs. He is also the author of the new book Go BIG or Go HOME, download it for FREE at http://www.GoBIGnetwork.com.Filia Blog7623
Vernice Blog10257
I dont know if there is some sort of mathematical equation you can put to this, but it would certainly appear that the smaller the investors check, the bigger the headache they become to an entrepreneur.
You might think the opposite would be true, that smaller investors would only expect to play a minor role in the business while the larger investors would make all of the important calls. What youll find in practice, though, is that raising and managing small chunks of capital from small investors is incredibly laborious while the more manageable investments come from much larger investors.
Less Money = More Time
Smaller business investors seem to have disproportionately more time to invest than they have money. These are the guys who are putting $5,000 into your company and think theyre Gordon Gekko, trying to run the company like some big time investor. All this extra time that they have to manage these investments actually sucks the life out of your deal because you have to constantly manage their expectations to the nth degree of detail.
Certainly getting help from a small business investor to grow your business is a nice thing, but not if it involves being micro-managed to death over every decision. A good small business investor will understand that their role is to invest in the company, not run the company. You want their invested capital working for your business, not another pseudo manager to contend with.
Small Checks Take Longer
Raising smaller amounts of capital doesnt translate into reducing the time it takes to get a check. In fact, sometimes the smaller amounts take more time because the people writing those checks really cant afford to invest (read: gamble) that money to begin with.
They need to be certain of every last aspect of the deal to the point where they over-analyze the deal completely. Before you know it, youre jumping through all of these hoops over a few thousand dollars. Its a huge waste of time.
Even if you do manage to land these small business investors, you can be certain hes going to be on the phone with you every 15 minutes trying to get a status update on his investment. Hes got the time, and the investment is incredibly meaningful to his overall personal wealth. Youve become his living, breathing stock ticker that he constantly wants to see updated.
Big Kids Run Faster
Believe it or not, it actually takes just as long to raise larger amounts of capital as it does smaller amounts. Thats because the larger investors (the big kids) tend to have less time to spend on any one deal. They have lots of deals to choose from, so they have to get to the point quickly and make a decision quickly.
For an entrepreneur raising capital, this is the best thing in the world. Ideally you want as much flexibility with the capital that you raise as you can muster. You want an investor who pays attention to the important points of your growth, like monthly earnings, not daily expenses. Thats what youre there for!
Thats why a bigger investor is usually a much better option when raising capital. They can make decisions about the investment faster, they can fill up your investment requirements faster, and they can leave you the heck alone so that you can grow the company a lot faster.
Too many cooks in the kitchen
With fewer small business investors you also overcome the problem of too many cooks in the kitchen. Startup companies need to make lots of decisions very quickly and decisively. The company runs a lot better as a dictatorship than a democracy. The more votes you create by adding more investors the longer the process becomes to make a decision.
You can overcome this problem by giving certain small business investors voting rights and giving other small business investors the right to keep quiet, but dont kid yourself youre going to hear from the guys who dont have voting rights whether you like it or not. So the best antidote is to simply have less people at the decision table.
Less is More
As youre thinking about raising your next round of capital, dont think in terms of lots of small business investors with a little capital think in terms of one (or two) investors with a whole lot of capital. You dont score any additional points for racking up the greatest number of investors. If there are any points to be scored, its from getting as few investors as possible in order to get your requirements fulfilled.
When growing a new business, every moment of your time has an incredible amount of value. The more time you spend placating overzealous small business investors, the less time you spend doing what you all came there to do in the first place growing the company!
Wil Schroters latest book Go BIG or Go HOME How the next generation of startup companies think BIG, grow FAST, and dominate markets overnight is available at www.WilSchroter.com
Wil Schroter is the Founder and CEO of the Go BIG Network, the largest network of startup companies and entrepreneurs. He is also the author of the new book Go BIG or Go HOME, download it for FREE at http://www.GoBIGnetwork.com.Filia Blog7623
Vernice Blog10257
posted by english78356 at 8:50 PM
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