Recently I came across a company that had raised $3M and created a prototype service but they didn’t sell nearly enough to make it a going concern. In their research they established that there was a need for a product similar to theirs but the feature set was so different that a re-write would be required. Let’s say they offered you 5% of the company to be the CEO… should you jump at the prospect or simply say “Thank you, but no!”?
There are lots of people around when an Investor puts money into a company – advisors, accountants, lawyers, bankers, introducers, corporate financers, etc. Who is really on the Investor’s side? Let’s consider the stakes if the venture fails. What do different people lose?
- Entrepreneurs. Entrepreneurs control the outcome of the venture and make decisions about its direction. If things go wrong, their decisions may lose them their income, their job, and any assets used as security. Entrepreneurs often end up carrying any remaining debt too.
- Investor. Investors will have put money into a venture some time ago and may have been giving advice and help to the entrepreneur. They have no control over the company’s destiny and will lose all the money they invested. If they are unlucky and are deemed to be a shadow director they may become liable for the rest of the company’s debts too.
- Bankers. Bankers usually have secured their loans against the assets of the entrepreneur. So when things go wrong, they’ll repossess them and sell them to pay off the loans. Will they lose some money, they might but it’s unlikely to be much.
- Deal makers. That is, the Angel Networks, Corporate Financiers, etc. who put the deal together for the Investor. They banked their profit when the deal was done. So they may lose a client but their money is safe (and there are plenty more clients around!). They are agnositic about the fate of the venture.
So who is interested in the success of the company?