A startup business can only go so far as its capital allows. That is why when a business investment goes MIA, it becomes a horror story. Find out the solutions when one of your investors ghosts your startup business.
Let’s take a look at this scenario. Opening day is coming soon, so you’re trying to contact your investors for updates. Suddenly, one of them doesn’t answer your calls or emails. Until one day, you get the response that the person is pulling out his business investment. Sounds like a very long day for you, right?
This is a possible problem that every entrepreneur wants to avoid. When someone withdraws an investment, you’re left with a big financial gap. And you have to act fast before your business crumbles down even before it starts to scale.
In this discussion, let’s tackle two topics. The first one deals with the common reasons that make investors quit. While the second part talks about the ways on how you can tackle the issue head-on.
Related Video: Top 7 Reasons Why Startups Fail
Top 3 Reasons Why Investors Leave
Putting yourself in the investor’s shoes helps you understand why business investments are withdrawn. Moreover, it fosters an alternative plan before the following circumstances happen.
1. The business idea becomes unprofitable due to market changes
The market is volatile—it adapts according to world events among other factors. So when it affects the profitability of your business idea, an investor can suddenly get cold feet.
In their mindset, they are investing money for an expected return. When that isn’t likely to happen, then it’s time to jump ship before it sinks them. Although some investors see this as a challenge, a number of them may avoid taking big risks.
2. Irreconcilable differences between the entrepreneur and investors
Unless it’s part of the agreement, an investor can take part in managing the business. Along the way of making business decisions, it is possible that both of you may not see eye to eye. And when irreconcilable differences occur, it may push the investor to exit from the business investment.
3. Investor experiences cash shortage
Yes, you read that right. Investors depend on their financial liquidity too. Therefore, if they are short on cash or assets, then they can’t continue investing in your business.
Here’s How to Stay Afloat Amidst Business Investment Pull Out
Getting an investor is already a challenge in itself. Withdrawn business investment is a scary predicament. If you cannot manage it properly, you can lose your business even before you start. So to counter the implications, here are some tips to remember.
1. Plan your next move
Talk to your partners about the business investment withdrawal. Create plans for possible consequences and a series of possibilities to prepare for every scenario. Unfortunately, you must also delineate the steps in preparation for the worst possible case—business shut down.
Start by looking into the timeframe and available finances. How much time before everything is gone? This way, you can point out where to cut back on expenses. And how soon should you get other means to fill the financial gap.
2. Talk to your current investors
It’s not only courtesy to let them know about the situation. But it can also pave the way for others to help you resolve it. Maybe one of them wants a bigger chunk of the pie, so they can take this opportunity to do so.
Now, to avoid a cascading effect, discuss the solutions you’re planning with them. This gives them a guarantee that you’re on top of everything. Moreover, don’t forget to confirm whether they are still on board, too.
3. Look for other investors
As they say, there are other fishes in the sea. So if one investor fails to fulfill the end of the deal, look for other people to fill the gap. Prepare to pitch your business idea to other industry key players.
4. Get in touch with your creditors
Contact your contractors immediately. Explain the situation and ask them if you can adjust the payment scheme. Also, warn them about possible delays in the payment before it happens. On the other hand, if you’re waiting for invoices, you can do invoice financing as a solution.
5. Look for other potential revenue streams
Are there things that you can offer related to these things? Can you offer other products or services without spending too much? Is it viable to accommodate more offerings at the expense of your current assets?
Rethink your initial product or service lineup. This enables you to find a way to increase your potential revenue.
6. Cut corners wherever possible
Avoid overstretching yourself by cutting back on your expenses. Try to keep good margins while looking for alternative solutions. Determine the things you can temporarily forego. But remember not to cut corners that can compromise your business or the quality of products.
7. Be open and honest with your team
Most likely, you already have a team by your side. Therefore, it’s best to be open with them regarding the situation. However, be careful in explaining the possible scenarios that can happen.
It is worrying news, so expect people to be emotional about it. After the initial shock, who knows, they may have ideas on how to resolve the situation.
Related Video: Why Startups and Businesses Fail
Your reaction to a business investment pullback is a choice.
As an entrepreneur, you can choose to raise the white flag. Or you can gather all your strength and sensibilities to stay strong and ride the tide. Situations like this will not only test your abilities to weather any challenges. It will also measure your passion and the will to see your business until the end.
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