4 Vital Things to Consider When Evaluating a Funding Offer
“Go West, young man,” is easily one of the most captivating and timeless American mottos — an invitation to all entrepreneurs to take a chance. Got a good idea? Come bet it all, you dreamers and schemers, make your fortune in the rapidly-developing western regions of the country.
It’s an idea that’s just as relevant now as it was in the 1850s, with a key difference — the West these days is a whole lot wilder, and the fortunes quite a bit bigger. Silicon Valley is a place of tremendous opportunity and risk. If you’ve built something that shows promise, potential investors will line up, and many new doors will be open for you. Before hitching your wagon to anyone else’s, keep the following considerations in mind.
1. Are you getting the right advice?
Here’s a painful bit of truth: Your smartphone isn’t always going to know the fastest way from Point A to Point B. So ask the locals. They know the lay of the land, they’ve done it before and they’ll get you where you need to go faster. The same principle applies to making investor-related decisions. Whether it’s a bank, venture capitalist or any type of partnership, it is critical to work with experts in your specific industry, company-size and market opportunity. Hire experts that can make introductions that are the right fit for you, and will be able to steer you away from tempting mismatches.
You’re allowed to be picky when it comes to taking advice. That extends to what you’re reading, as well; credibility is essential. I should point out that Apttus, the company I co-founded, is a newly minted unicorn, and accepted $108 million in our third round of funding. Knowing the right people has been invaluable every step of the way.
2. What’s your story?
I’m not referring to a company overview or a product description here. Take a step back and understand that accepting an investment is a landmark event in the history of your organization. A sudden influx of cash puts many options on the table, and that’s not without risk. Will you focus your growth on the sales team and seize a wide-open market opportunity? Open offices internationally and tackle new markets? Develop a new set of products to solve for specific customer needs?
There are a thousand and one directions to go in, but your selections will show the world what kind of company you aspire to be. Although every vertical and industry has separate goals, all share this trait: These choices are being watched and recorded by prospects, customers, competitors and even within your organization. Stay cognizant of your own story and it can become your greatest strength.
3. Do you truly know your partners?
Potential investors will seek to maximize their investment in your company. It’s only fair that you should maximize their value to you, as well. This can and should be a key factor in who you might select to work with. Consider each opportunity carefully, not just by the amount being offered to you — what do you need more, larger cash reserves or more control at the executive level? Is a “brand name” in the world of investing important to your customer base? What business advantages can an investor present to your organization?
Above all else, don’t be afraid to ask questions before committing to a potential investor. You are building a long-term relationship by accepting funding, and that requires trust. Sometimes trust is built over an extended period of time — my company has built its software solutions upon Salesforce’s platform since 2006, and accepting investment from them was substantially simpler because we already trusted one another. In the absence of time, it is essential that you ask questions until everyone is comfortable. Fire away. If they can’t answer, perhaps it isn’t the best fit.
4. Are you getting too far ahead of yourself?
If you’re evaluating a funding offer, you have already set a goal, worked incredibly hard and hit that goal. Congratulations! But what’s next? That’s the first question you’ll hear. The goal of every company doesn’t have to be bigger and better; you can be successful at any size. Don’t get ahead of yourself. Look across the landscape of Silicon Valley’s failures: Do you think any of them pushed too hard, too fast and weren’t ready for what they met a little further down the road?
We live in amazing times — a single idea can change industries in the blink of an eye. There’s such value in that concept that outside influence can often push you in directions your company may not be ready for. A spark can become an out-of-control wildfire without the right supervision. If you’re in any position to add extra consideration and thoughtfulness to an impending deal, I urge you to do so. Commitment to responsibility and knowing the capabilities of your organization is one of the most important, and frequently overlooked, aspects of accepting investment.
This post is authored by Kirk Krappe and was originally published by our media partner Mashable.
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