2. Poor investor match
As part of your risk management strategy, yous should choose your investors wisely. Problems can arise if expectations are not aligned, for example if the investor wants to focus on sales to increase income while the founder wants to first invest time in developing the company’s product or technology.
Don’t forget to check the backgrounds of potential investors, as a problematic credit history, for example, could interfere with obtaining bank financing down the line. And it’s also important to consider whether the potential investor has the ability and willingness to support with more cash in a stress scenario, according to Oskar Kihlmark, head of Startup & Growth Sweden.
“Companies with investors that have the ability to provide more capital often succeed. Those with investors on board who are not willing or able to support with more money often run into problems,” he says.
An investor can also boost a company’s chances of success by contributing their competencies in a given field, providing access to their professional network and raising the company’s visibility.
“Too many companies take the money right away when they should really use more time to define who are the right investors for them. The investors’ contribution to a company can be very significant, and that’s important to define,” says Kihlmark.