You are creating a business and you’re seeking investments. Since getting investment for you is not ultimate aim, you need to know before the deal with the investor:
• Legality of origin of capital
• Names of people that are the final owners of capital
• Limits of power of the person that is negotiating you
If you can’t ask these questions then business is not for you.
If the responses don’t suit you then you have no business at this time.
If you can’t check the responses then the business will not yours.
• You can not limit the business relationship. You will not run your business. Most of the time will be spent not on business but on the family plot. If the elders do not agree among themselves, the responsibility is on you.
• There is a risk of forced receiving unhelpful staff that is other relatives. You can’t fire them, you can’t punish them, you can’t isolate them from activities, and you have to pay them.
• Investor can make decisions impulsively, on the basis of emotion.
• Combinations that are dangerous for the business: Relative which Functionary, Relative which Coercion Practitioner.
• Illusion: my nephews and children-in-law do not disappoint me in any case.
• Fear: have to be ashamed in front of the most senior family members.
• Swindle: no.
• Countermeasures: to ignore family relations.Heir
Origin of capital is non-recurrent income: inheritance, compensation, benefit, finding the treasure.
• Typically, no business experience. Has a surplus of free time. Daily asks how things are going. Can invest just because he (she) likes the product, no calculating how many people might like it too.
• Illusion: enough to invest money once and will clip coupons.
• Fear: to be deceived.
• Swindle: no.
• Countermeasures: to document regularity of querying and reporting, and have appointed person for performing a specified range of errands of the investor.Gambler
• Origin of capital is the regular winnings in gambling, betting and so on.
• Invests if there is not enough cash for a major purchase.
• Often not available on all channels.
• Typical share is 10-25%
• Risks: the persecution of the investor for tax evasion, a sudden need for urgent withdrawal of funds.
• If he (she) is in a hurry to take out money from the business, you can buy his (her) share at big discount. Or not you.
• Illusion: business is just thrift-box of money to play, easy to take them out at all necessary.
• Fear: no.
• Countermeasures: to give not more than a blocking share, and to use additional channels of communication and warning systems.Celebrity
(Only well-paid, people of creative professions, sports, etc.)
• May have the emotional swings.
• Typical share is 10%.
• Illusions: the existence of your business will increase his (her) revenues from its core business.
• Fear: troubles in your business have a negative impact on its core business.
• Swindle: no.
• Countermeasures: have appointed person for libations, celebrations and consolations on star’s demand. For example, alco-drug-star-sitter.Functionary
• Demonstrates well-being. Is horrified by loss of position. Believes current position and the accompanying privileges deserved reward. May be useful only while in the capacity. After losing position blocks every decision about spending, avoid making decisions on principle. Prevents his (her) exit from the business. Categorically does not want to pay for anything.
• Typical share is 9% if he (she) is a beneficiary. Bigger share when using the nominal beneficiary. Interprets his (her) share as insurance against loss of the position. Usually, you make the nominal contribution to statutory fund instead of such investor.
• Speech: Avoid the word "I". Ambiguously uses the word "we." "We're starting to work" means "you will start to work." "We can solve this issue" means "My boss would resolve the issue"
• Illusion: nobody knows.
• Fear: loss of the position, and to have made a bad bargain in the exit.
• Swindle:
Step 1. To make hints of his (her) enormous potential and take a prepayment for a solution.
Step 2. If the problem is not solved, can partially return the prepayment as an honest person. If the problem is solved by itself, then considers this job done, as an honest person.
• Countermeasures: publicity, collection of blackmail from legitimate sources.Coercion Practitioner
• Refers to the business as a single operation.
• Accepts forecast as a liability.
• Looking for vulnerabilities.
• Prefers to participate in the business, products which can consume directly (hotel, restaurant, car services, club, etc.)
• Believes that the key to get into the business.
• Language: A lot of asks again.
• Illusion: In every business there is the only cherished chip, if get it he (she) can replace you by his (her) person.
• Fear: you are or become a Trojan horse from a more powerful organization.
• Swindle (for a simple business):
Step 1. The investor gives 100% of money; investor’s share is 51-75%, yours one is 25-49%. You give a receipt to the investor at the rate of your share.
Step 2. You are half a step from income, but something goes wrong. Suddenly, the investor declares that you have failed, and it's time to fix the damages. You give your share for a pittance in partial repayment of your debt to the investor in the receipt.
Step 3. The remaining half-step to income is made by trusted person of the investor. Business works, but without you.
• Transit money will go through you business, you can not refuse.
• Countermeasures: None. Just exit the business. Alive, healthy and at large.Protege
• Not owner. To lose the owners’ capital is to have lost credibility and income, to earn a lot for the owners of capital is to earn for himself (herself) a bit. Differs from the functionary by share size and swindles.
• Most honest funds write on their sites that they do not buy the share below the majority.
• Illusions: no.
• Fear: You will agree with investor which has better lawyers.
• Typical share is 51-75%.
• Swindle:
Step 1. You still have the controlling interest. Formally independent investor makes the first round; the first part of money is paid, the second part is promised. The business draws money. Patents and prototypes are in the ownership of the business.
Step 2. The investor declares that he ran out of money, but he (she) can agree on the second round. If you bring second investor, he (she) blocks the deal. In the second round his (her) and your shares is proportionately reduced. The transaction took place, you lose the majority. You think that you have a controlling interest together with the first investor, but in fact, the first and the second have got control together.
Step 3. The second investor is the fund, generally. Investors appoint their CEO. Money is in business, but you can not dispose of them.
Step 4. Investors will not sell you their share; you sell them your share of the residual value.
Step 5. Investment is made; the business goes to planned capacity, but without you.
• Countermeasures: each new contract to take away before signing, for a detailed examination with an adviser and lawyer. Separately.Fairy tales and true story
Fairy tales often end with the entry into long-term contract and a brief mention of the simultaneous withdrawal of the parties of this contract and the business. What is between the entrance to the business and the exit from it is not included into a format of fairy tale. That is, while the investment makes then the fairy tale ends and life begins.What to do
You are on the right way, if each item is true:
- You can check out basic information about the investor,
- Investor projects exit of the business before entering into business
- Investor has the experience of decision-making as the owner,
- Investor invests in your business his (her) personal money too,
- You understand how investors make decisions
- You are happy with feedback on the investor from entrepreneurs, who deal and / or dealt with the investor,
- You can check out this feedback on the investor. Examples of background check on consistency will be on another occasion.
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