10 Warning Signs of Investors You Should Avoid

 
 

Business funding. Without it, nothing happens. The moral of this story is simply to be cautious when choosing an investor and not to let your eagerness to find capital cloud your judgement. Chances are, the perfect investor for your business is out there, and to find them, you have to first weed out those who fit the following description.

 

1. No portfolio, or a very small one.

Finding the right investor for your business is not the time to take a chance on someone. Even if they seem to have all of their ducks in a row, you should probably pass on them if they can’t show you any prior successful investments, or very few.

 

2. Investments in various spaces.

It’s not a deal-breaker if your investor has their hands in a few different projects; however, what you do want to see is a good deal of focus into their investments. If they are invested in a variety of industries, then their efforts may not be concentrated on your space.

 

3. They don’t tell you what they are seeking in a startup.

This is most likely a sign that this investor is not serious about working with your company. Serious investors know exactly what they are looking for. If they are actually considering backing your company, then they will have some clear criteria that they want to see in a potential investment.

 

4. Lots of excitement, but no term sheets or indicators of possible commitment.

Talk is cheap. Make sure that, again, an investor shows you some indication that they are serious. Just like a stranger you meet who acts like you’re their new best friend, if there’s no proof of interest in a commitment, who knows what their intentions are.

 

5. Lots of discovery calls from the same investor.

When you get multiple discovery calls from the same investor or firm, it’s probably not worth your time. This type of activity means that they may be shopping the players in the space to make an investment elsewhere—your time will be better spent with an investor who has hand-picked your business because they are truly interested in you.

 

6. The cold email they send you is clearly canned.

Despite what anyone says, you can tell a lot about a person or organization from first impressions. It’s pretty easy to spot a synthetic email that is sent out as a probe on a mass scale, which was not written directly to you. As with discovery calls, it just shows that the investor did not deliberately find your business, and it’s most likely not worth your while.

 

7. They discourage you from talking to other investors.

If this happens, it’s a fairly blatant signal that this is not someone with whom you want to do business. A reputable investor should have respect for you and your company, never attempting to bully or coerce you into a commitment with them.

 

8. They attempt to assume control of your board.

This is one of the greatest dangers of entering into a relationship with the wrong investor. Many investors prey on small businesses who are just starting out or in desperate need, and attempt to gain control of their board. Just don’t let it happen. They most likely don’t have your best interests in mind and could steer your company in a direction you do not want to go.

 

9. They want to set unrealistic goals for your company.

You know your business. You know it inside and out, but an incoming investor does not. If they are expecting you to meet goals that you know you aren’t able to achieve within a provided time frame, consider it a red flag.

 

10. You simply don’t like them.

The basis of the relationship between you and your investor is not primarily social, but it is important that you don’t hate each other. You’re going to be working with this person or group for what could end up being quite a long time, not to mention that that may own a small share of your company. That’s someone with whom you want to be sure that you get along.