I don’t know if there is some sort of mathematical equation you
can put to this, but it would certainly appear that the smaller
the investor’s check, the bigger the headache they become to an
entrepreneur.
You might think the opposite would be true, that smaller
investors would only expect to play a minor role in the business
while the larger investors would make all of the important
calls. What you’ll find in practice, though, is that raising
and managing small chunks of capital from small investors is
incredibly laborious while the more manageable investments come
from much larger investors.
Less Money = More Time
Smaller business investors seem to have disproportionately more
time to invest than they have money. These are the guys who are
putting $5,000 into your company and think they’re Gordon Gekko,
trying to run the company like some big time investor. All this
extra time that they have to manage these investments actually
sucks the life out of your deal because you have to constantly
manage their expectations to the nth degree of detail.
Certainly getting help from a small business investor to grow
your business is a nice thing, but not if it involves being
micro-managed to death over every decision. A good small
business investor will understand that their role is to invest
in the company, not run the company. You want their invested
capital working for your business, not another pseudo manager to
contend with.
Small Checks Take Longer
Raising smaller amounts of capital doesn’t translate into
reducing the time it takes to get a check. In fact, sometimes
the smaller amounts take more time because the people writing
those checks really can’t afford to invest (read: gamble) that
money to begin with.
They need to be certain of every last aspect of the deal to the
point where they over-analyze the deal completely. Before you
know it, you’re jumping through all of these hoops over a few
thousand dollars. It’s a huge waste of time.
Even if you do manage to land these small business investors,
you can be certain he’s going to be on the phone with you every
15 minutes trying to get a status update on his investment.
He’s got the time, and the investment is incredibly meaningful
to his overall personal wealth. You’ve become his living,
breathing stock ticker that he constantly wants to see updated.
Big Kids Run Faster
Believe it or not, it actually takes just as long to raise
larger amounts of capital as it does smaller amounts. That’s
because the larger investors (the big kids) tend to have less
time to spend on any one deal. They have lots of deals to
choose from, so they have to get to the point quickly and make a
decision quickly.
For an entrepreneur raising capital, this is the best thing in
the world. Ideally you want as much flexibility with the
capital that you raise as you can muster. You want an investor
who pays attention to the important points of your growth, like
monthly earnings, not daily expenses. That’s what you’re there
for!
That’s why a bigger investor is usually a much better option
when raising capital. They can make decisions about the
investment faster, they can fill up your investment requirements
faster, and they can leave you the heck alone so that you can
grow the company a lot faster.
Too many cooks in the kitchen
With fewer small business investors you also overcome the
problem of “too many cooks in the kitchen”. Startup companies
need to make lots of decisions very quickly and decisively. The
company runs a lot better as a dictatorship than a democracy.
The more votes you create by adding more investors the longer
the process becomes to make a decision.
You can overcome this problem by giving certain small business
investors “voting rights” and giving other small business
investors the right to keep quiet, but don’t kid yourself –
you’re going to hear from the guys who don’t have voting rights
whether you like it or not. So the best antidote is to simply
have less people at the decision table.
Less is More
As you’re thinking about raising your next round of capital,
don’t think in terms of lots of small business investors with a
little capital – think in terms of one (or two) investors with a
whole lot of capital. You don’t score any additional points for
racking up the greatest number of investors. If there are any
points to be scored, it’s from getting as few investors as
possible in order to get your requirements fulfilled.
When growing a new business, every moment of your time has an
incredible amount of value. The more time you spend placating
overzealous small business investors, the less time you spend
doing what you all came there to do in the first place – growing
the company!
can put to this, but it would certainly appear that the smaller
the investor’s check, the bigger the headache they become to an
entrepreneur.
You might think the opposite would be true, that smaller
investors would only expect to play a minor role in the business
while the larger investors would make all of the important
calls. What you’ll find in practice, though, is that raising
and managing small chunks of capital from small investors is
incredibly laborious while the more manageable investments come
from much larger investors.
Less Money = More Time
Smaller business investors seem to have disproportionately more
time to invest than they have money. These are the guys who are
putting $5,000 into your company and think they’re Gordon Gekko,
trying to run the company like some big time investor. All this
extra time that they have to manage these investments actually
sucks the life out of your deal because you have to constantly
manage their expectations to the nth degree of detail.
Certainly getting help from a small business investor to grow
your business is a nice thing, but not if it involves being
micro-managed to death over every decision. A good small
business investor will understand that their role is to invest
in the company, not run the company. You want their invested
capital working for your business, not another pseudo manager to
contend with.
Small Checks Take Longer
Raising smaller amounts of capital doesn’t translate into
reducing the time it takes to get a check. In fact, sometimes
the smaller amounts take more time because the people writing
those checks really can’t afford to invest (read: gamble) that
money to begin with.
They need to be certain of every last aspect of the deal to the
point where they over-analyze the deal completely. Before you
know it, you’re jumping through all of these hoops over a few
thousand dollars. It’s a huge waste of time.
Even if you do manage to land these small business investors,
you can be certain he’s going to be on the phone with you every
15 minutes trying to get a status update on his investment.
He’s got the time, and the investment is incredibly meaningful
to his overall personal wealth. You’ve become his living,
breathing stock ticker that he constantly wants to see updated.
Big Kids Run Faster
Believe it or not, it actually takes just as long to raise
larger amounts of capital as it does smaller amounts. That’s
because the larger investors (the big kids) tend to have less
time to spend on any one deal. They have lots of deals to
choose from, so they have to get to the point quickly and make a
decision quickly.
For an entrepreneur raising capital, this is the best thing in
the world. Ideally you want as much flexibility with the
capital that you raise as you can muster. You want an investor
who pays attention to the important points of your growth, like
monthly earnings, not daily expenses. That’s what you’re there
for!
That’s why a bigger investor is usually a much better option
when raising capital. They can make decisions about the
investment faster, they can fill up your investment requirements
faster, and they can leave you the heck alone so that you can
grow the company a lot faster.
Too many cooks in the kitchen
With fewer small business investors you also overcome the
problem of “too many cooks in the kitchen”. Startup companies
need to make lots of decisions very quickly and decisively. The
company runs a lot better as a dictatorship than a democracy.
The more votes you create by adding more investors the longer
the process becomes to make a decision.
You can overcome this problem by giving certain small business
investors “voting rights” and giving other small business
investors the right to keep quiet, but don’t kid yourself –
you’re going to hear from the guys who don’t have voting rights
whether you like it or not. So the best antidote is to simply
have less people at the decision table.
Less is More
As you’re thinking about raising your next round of capital,
don’t think in terms of lots of small business investors with a
little capital – think in terms of one (or two) investors with a
whole lot of capital. You don’t score any additional points for
racking up the greatest number of investors. If there are any
points to be scored, it’s from getting as few investors as
possible in order to get your requirements fulfilled.
When growing a new business, every moment of your time has an
incredible amount of value. The more time you spend placating
overzealous small business investors, the less time you spend
doing what you all came there to do in the first place – growing
the company!
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