Accepting investment in a startup too early can cause a lot of issues for the owners. See if you can identify some of the reasons why many startup entrepreneurs, and investors, find this to be true true among the statements below.
(Select all that apply.)
Accepting investment too early makes it much easier to ignore the hard work of finding real customers with real needs their business can serve. Having customers be your only source of money means you have to listen to them closely.
There's no real downside to accepting investment. It doesn't cost money to set up the paper work, and investors don't have any legal rights, so new business owners have nothing to lose.
Accepting investment too early can make investor opinions more important than customer opinions. Investors frequently have very strong opinions about how a business should be run and what the owners should be doing, and when they are providing a lot of cash to a business their voice can be very loud.
Investors can have agendas, expectations, requirements, as a business launches and grows that put them in opposition to the customers the business serves. This can create an impossible set of demands for the business owner that gets worse over time.
The best time for a company to take investment or a loan is when they are making a profit by selling customers what they want at a price they are happy to pay. The business is already working correctly. A little funding at this point can help the company reach more customers quickly, get required resources or personnel more cheaply, and increased profit will be generated almost immediately. Money before that point can be risky for a business to take because they don't have to listen to customers or come up with a product they want.
Investors have rights, and when smart business owners accept investment they know they have to work with lawyers to make sure they obey all relevant laws in their jurisdiction in order to protect themselves, their company, and all their investors..
If a business owner can get their business up and profitable, they can get loans instead of investment, which means they can retain more ownership and control over their business. When they sell their business, and most good businesses are sold, they earn a lot more money.
