Danger of raising money: time wasting, bad investors, loans you can’t pay back

September 24, 2014

Many entrepreneurs who are raising money tend to mostly think of the benefits of raising money rather than the drawbacks that come along with the effort you have to put into fundraising and sometimes even the funds themselves. Let’s take a few moments to explore some of the negatives of raising money that are good to keep in mind.

Loans: They Must Be Paid Back

If you are considering funding your business by taking out a personal loan or a business loan, keep in mind that when you take a loan, that money isn’t yours. You must pay that money back. If your business doesn’t make it, not only will you have a failed business, but you will be stuck paying off the loan you took.

Entrepreneurs tend to be optimistic and think that failure isn’t something that will happen to them, but statistically, most businesses fail. As the entrepreneur, you must seriously evaluate scenarios where your business does not succeed, and have contingency plans for what to do if it doesn’t. Doing this will help you realize the amount of risk you add when you take out a loan to fund your business.

Simply Taking Cash Won’t Help Nearly As Much As You Think

As I mentioned earlier, cash has a way of getting spent and running out. If your business direction and strategy isn’t ideal, you may end up spending the money to pursue business strategies that are less than optimal, which ultimately won’t be very beneficial for your business. Months later when cash is low, it might be a bad time to realize that the business strategies you were executing were faulty, and you’ve spend most of your cash pursuing them, but didn’t end up growing your business nearly as much as you had hoped.

Prioritize finding great mentors, advisors, and experienced co-founders rather than simply getting cash.

Meddling Investors

If you are lucky enough to get an investment, that may seem like a huge boost for your business. But there are some investors who add a negative presence to the business, and want to influence business direction more than they should. Some investors are also too concerned about their money in the short term, and don’t understand that they just made a long-term investment. Those investors can annoy you and waste your time by calling you daily or weekly to check on the progress of your company. That may seem ok in exchange for taking their money, but if their meddling presence begins to have a negative impact on various parts of the business, how much does their money really help?

Investors Who Won’t Let You Run Your Company

Some investors (especially non-professional investors) think that since they gave you money, they have a strong say in the business direction, and exert pressure on you to do what they say. Don’t forget that this is ultimately your business. It is great to take advice, but ultimately you must make the decisions.

Wasting Time Fundraising

One of the worst things about trying to raise money is spending a lot of your resources (time, money, and emotional energy) and not ultimately raising any money. That represents a complete waste of your time, which was time that you could have put into the growth of your business or improving your product.

Think twice before you begin your fundraising efforts. Think about how likely are you to succeed pursuing the fundraising strategies you are about to explore for your business. Think about whether these efforts will be worth the risk, and whether it might be better to put those efforts into your actual business.

Fundraising Book And Course

If this was helpful, you may be interested in getting my full book on fundraising or taking my full online course on raising money. This blog post is just one section from the book. If you are wondering, the book and the course cover approximately the same material, so you only need one or the other. Here is my fundraising course, and here is my fundraising book.