Many home-based businesses often start very small, but some end up growing big enough to be attractive to private investors.
If you are thinking of looking for investors to infuse the much-needed capital your business needs, you may first want to read Inc. Magazine’s article “8 Private Equity Pitfalls and How to Avoid Them” (March 2007 issue, pp. 111-115). The article warns that it is important to remember that “not all investors care about your interests — and some will do whatever it takes to close the deal.” Here are the common pitfalls you need to watch out for:
- You move too fast — it can be very easy to be ecstatic with multimillion dollar offers of private equity investors, but it is important to take time to think through and research the proposed deal.
- You don’t know what you want — give a lot of though to what you want, and whether the deal being offered to you fits your idea of getting investors on board. Some will want a single big investor, while others want smaller investments from more investors.
- You’re not ready to cede control — determine how much control you will be giving up by accepting the offer of investors
- You’re not ready for due diligence — getting investors on board often involves due diligence, a process that can take months and distract you from what you really need to focus on which is running the business
- You skimp on advisers — select the best lawyers or investment advisors you can find to help you assess the deal, and be sure to be on top of the whole process
- You don’t acknowledge your weaknesses — put your best foot forward, but be honest about the weaknesses and challenges faced by your business
- You don’t do your homework — research your investors by talking to other business owners they’ve worked with and ask them to clarify their expectations with your business
- You ignore the importance of chemistry — there are people you work better than others, and it is important to determine if these investors you are bringing on board are the types of people you can work easily with
