Imagine that you’re a millennial and your startup has attracted the attention of a venture capital firm or an angel investor. They like what you have to offer (which is likely a business model that has high-growth potential) and want to invest in your business. This is everything you’ve been dreaming of, but at the same time you, understand that it’s important to proceed with caution. As a millennial entrepreneur, you’re still on the fairly young end of the age spectrum and want the relationship established to be professional and a win-win for both parties.
What should you do next? Don’t rush into accepting the biggest offer. Millennial entrepreneurs need to do their due diligence on what working with either a venture capitalist or angel investor means for the bottom line of their business. Before you sign any contracts, take the following questions into consideration.
Am I okay with allowing investors to control portions of my startup?
Capital from venture capitalists (VCs) and angel investors comes with a set of strings attached. In exchange for the funding, the investor will want a stake in the business. Usually, the stake is in company shares or an equity position. Once the investor has this stake, they will be active in the business. This means they will have a say in how the company is run — which is often difficult for entrepreneurs to come to terms with after running the show on their own.
Before you work with an investor, you need to make sure you’re okay with the prospect of no longer being the sole owner of your startup. If you feel confident enough to let go and know that the business is in trusted hands, do it. If not, it’s okay to wait for a bit. Sometimes the timing isn’t always right in the moment, but could be better later.
How much does my startup really need?
Answering this question determines whether you work with a venture capital firm or angel investor since both provide funding at very different financial levels.
VCs can invest millions into your startup, while angel investors can only invest about $100,000 into the business, since the funds they’re offering are their own. Do the math and calculate the exact amount of capital your startup needs. If you find that it’s more than $100,000, but not necessarily in the multi-millions, you may want to consult a micro VC for assistance.
What else can a venture capitalist or angel investor provide my startup?
Millennial entrepreneurs don’t want “just money” when it comes to their startup. This is an idea they have been passionate about and they want to work alongside investors who are just as excited about the company.
Look into additional resources that a venture capital firm may offer, such as a network of advisors to consult, as well as accelerators. If you work with an angel investor, see if they would be open to becoming a mentor to you and your business.
Is my startup ready for this step forward?
As I mentioned earlier, these types of investors generally approach companies that have high-growth potential. However, no matter what industry you’re in or the type of product or service you offer, there is still no guarantee that it will be an immediate success.
The risks will always be high and they’ll always be there, so you must move forward with confidence. Create a thorough business plan (or edit your existing one to be as up-to-date as possible) to bring with you before meeting with any interested investors to show that you’re serious about your future together.