Why Going For Investment Is Just As Likely To Break You As Make You

Spend too much time on LinkedIn or Medium and you will start to believe “Angels” really do come from heaven.

Fail fast, fail harder! Scale up! Hack your way to the top!

Whatever happened to simply growing a company organically?

It goes something like this. “Hmm, I’ve always wanted to make cheese, so I’ll try to make a batch.”

“That looks pretty good –  tastes great too, so I’ll take it to the farmers market this weekend.”

“Hey, that went pretty well, maybe I’ll make some more next time – hmm, but I’ll need some equipment to make bigger batches.”

Ok stop! What happens now is you have a choice.

You can wheel in the big guns – go after an investor, and persuade them to buy you a small farm in Lincolnshire. All on the strength of one good batch of cheese.

The investor looked at your business plan for a few minutes and then he scrolled down to the bit where it said “SEIS / EIS eligible”.

Now, if you know how SEIS and EIS tax breaks work, from an investor’s perspective, they can hardly lose. If you succeed, they make money, if you lose everything – they don’t lose because their losses are deductible against their CGT.

And most investors back lots of companies, or invest in a fund that does, so if you do go bust – meh, there’s 13 other companies in their portfolio that might succeed.

Now let’s look at scenario number 2. You decide that before you invest most of your own money and a lot of some other people’s in your venture, you are going to take your time, hold on to the day job, and keep making the cheese in normal sized batches.

And let’s say after six months’ sales at the farmer’s market have plateaued, your family are hassling you to spend more time with them at weekends, and you decide, well, that was fun but its’ time to jack in the cheese-making.

“Thank goodness I didn’t put my life savings into it!”

I’m sure you see what we’re getting at here. Entrepreneurs’ fall in and out of love with ideas regularly, and many investors are opportunists who don’t get involved in the day to day of a startup.

That goes some way to explaining the exceptionally high failure rate experienced by early stage businesses. There are just so many reasons why they might fail, we don’t have space to write them all here.

So, let’s look at a third scenario. Before you make batch of cheese number 10, say, you sit down and you write a business plan. You write down all the equipment you might need, and work out how long it will take to acquire that equipment if you continue to earn at your current level. You look five years down the line and make sure you know every number, every milestone, off by heart. You ask yourself if you truly see yourself doing this in five years’ time? You check with the husband, wife, kids, partner what they think and try to gauge if they can / will support you.

Then you start playing with “what if?” scenarios. What if I had an extra £50k? What if I could get an intro to this distributor?

Now you are ready to decide if scaling, supercharging, whatever you want to call it, your business is truly something you want to do.

Remember, don’t get carried away with all the startup / VC beer and pizza. It ain’t all peaches and cream.

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