5 Signs Your New Investor Is Bad for Business

5 Signs Your New Investor Is Bad for Business

You took the money but now you have a big problem.

You conquered the scary fundraising part – you found an investor for your startup. Sit back and exhale a long sigh of relief. You have now accomplished what very few entrepreneurs ever do. It’s all downhill hill from here you whisper to yourself. Right?

Not so quick emerging business maven. The money is only part of the deal; the other part is working with your investor. I know, I have been on both sides of this equation having raised millions as well as dispersed millions. I have seen the good and the bad.

In case this is your first rodeo, let me state in no uncertain terms that you will be working closely with your investors. Even if they do not want to, you will need to manage them on a monthly basis. This is how you do it right. Yes, there are active investors and passive investors. The active investors are better (in my opinion). You want their help and advice and guidance. They are an asset for you to utilize, especially in tough times. But there are bad active investors.

Here are five signals that you have a bad investor (which are also questions you should ask other founders in due diligence on your investor):

  1. They discourage working with other investors. This is one of my hot buttons so I am leading with this one. This is a sign of insecurity with your investor – never a good personality trait. I am a huge fan of taking money from at least two investors. The balance works in your favor. Any investor who actively works to prevent other investors from joining the team is a bad actor.
  2. They invest in very similar companies. Good investors like to keep their investments within certain themes. That is a very good thing for them and you as they develop an expertise that can be shared with you. However, you don’t want to see them play one company against the other in the hopes that one will win. This is a question to ask and something to monitor closely. As there are degrees of overlap, probe with them where they come out on this subject.
  3. They over push unrealistic exit goals. Listen – they expect a return on their money. That is what they invest; don’t ever forget that. But, some newbie investors push you to find an exit, maybe even manage your company with that outcome in mind. My advice – manage your company for growth and exit opportunities will present themselves.
  4. They fire CEO/Founders too quickly. Great investors want to see you develop into a star CEO. That is the easiest outcome and best for the company. Some of you will hit a ceiling, it is inevitable. (My interests and skills are in the $0 – $5M range, and then I get bored.) Hopefully you will be self aware to know when this happens for you and the company. But, bad investors want to pull the trigger as soon as you miss a milestone. Good investors will work with you through a handful of these bumps in the road.
  5. They dominate discussion at a board meeting. I thought I would end on one of my favorite, or least favorite, sign that you have a bad investor. Board meetings should be strategic discussions not accounting reviews. Good investors share the airtime. Bad investors hog the airtime. Listen to them while you are dating and picture this investor around a table of their peers.

First of all, congratulations on securing an investment. Now the hard part begins. Learn to manage your investors from day one and look out for the outliers.

This article first appeared in INC.COM – find more of my articles there.

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