Better Business Series - 1. SHARKS IN THE WATER
The top four investors to AVOID when raising funds for your startup or small business.
by Todd Mitchem
I have now started and been involved in many companies in the cannabis industry with great success, but along the way I have learned many lessons that I apply to all new ventures so those become well-oiled machines. Some of these lessons came from watching my friends, colleagues and other business leaders struggle with mistakes. Other examples come from my direct experiences not only in the cannabis space but from my time with the company, Eagle’s Flight where we literally changed massive organizations from the inside. In this series, “Making your business better”, I will be talking about all types of mistakes you can make in your venture, but today let’s start with something on a great deal of minds, the investor. If you are involved in, founded, or lead a small company, chances are you are talking about investors. After all, you need money to build the business scale and increase market share. No one is saying that you should not be focused on raising funds. However, I want to help you raise the right funds so that your company can thrive and you can do this by avoiding the Bad Investor that can destroy your team, your company and your life.
Remember, your company, your partnerships and the employees you hire are not throwaway things in the name of “making money”. In fact making money should never be your primary focus. Doing good, building a sustainable company, and changing the world are focuses that will lead you down a better path to success. If you are starting or building any company, either in the cannabis industry or not, I hope that this list of three investors to avoid will help you dodge the pitfalls and guide you as you build a great organization. Remember there are lots of investors out there who all have money and want to give it to you. But, many want to take over, destroy your team and think they have all the answers. They don’t. The good investors focus on very different things (which I will cover at the end). First I will arm you with the profiles of the three most common investor types.
Bad investors – What defines a good or bad investor? That is the question that I ponder constantly as I embark on or advise on new start up ventures. One thing is for certain, in our world, we need cash to grow any business, but as the founder, business leader or person responsible for finding investors you need to be aware that there are sharks in the water disguised as dolphins and they can destroy your business fast. Most business or start up entrepreneurs will define investors with such words like, Angel, Private Equity, VC etc. Those are really sexy names for the types of money you can obtain but they don’t really tell you about what kind of person that investor is. I have defined the bad types of investors differently regardless of what money backs them. As your company grows, these types of investors can destroy it faster than anything.
1. The Salesman – This type of investor, regardless of where his or her money comes from, is scary. They come in slick, smart and aggressive and all throughout the initial interaction they convince you that you need them. Like a good sales person who tells you, “What will happen to your family if you don’t buy this life insurance?” these pushy and often fast talkers are in it for one reason, MONETAZATION. Nothing else matters. In fact, these people make you believe fast that you can’t survive without them, which is completely false because there are lots of money options out there. Also they are VERY skilled at dissecting your business quickly to determine where the weakness is, so they can exploit it to gain advantage. Usually through “wine and dine” effect, this type of investor will make you and others on your team fell like they are on your side and want you to be successful when in fact they are about to slice and dice you up to take over. Once you have their money, the ruin begins swiftly.
What to do: If you encounter this person immediately tell them NO! Don’t waste your time or your teams and NEVER give them time to get involved. The most slick among this group of investor will divide your team fast and gain advantage quickly. The more they know you the more they will make you feel like they are your friend. Never invite them to key meetings, or strategy sessions. If they don’t like it when you say ‘NO’ then that is a good indication you need to exit. Just like you tell a car salesman that you are “Just looking” address The Salesman in the same way. Say to them, “Thanks but right now we are just shopping investors. We are lucky that we get to be discerning in this area so this meeting is just a chance for us to get to know you.” Salesmen (and Saleswomen) hate this and will get frustrated quickly.
2. The Bully – One of my favorite people to say ‘NO’ to is the bully investor. Usually disguised as smart VC or Institutional investors, The Bully moves quick, talks fast and will often attempt to insert themselves in your leadership team’s discussions to make the team feel inferior. The Bully asks tons of questions in condescending way and in a very rapid-fire tactic. Make no mistake, this is simply to throw you off and make you feel like you are stupid for not knowing all the answers. This is a tactic and used to give The Bully power over your team. If even a few of your fellow leaders believe The Bully or side with them you have a huge problem brewing. I have seen Bullies literally argue with founders, fight with team members and basically destroy companies of all sizes in the fastest way possible. The Bully will also try to convince you that you don’t need certain people such as your star employees, other leaders and even founders. Why? Because those people are often the ones that smell The Bully’s BS the fastest. Once The Bully invests in your company and you let them in, they will use their “funds” as a leverage to control the company. Threats will start, and often The Bully will bring in more of his or her team to tear your company apart in the name of “protecting their investment” which will not work and ultimately your business will fail as a result. One of my former clients, before my work in the cannabis industry, got reeled-in by a Bully who invested and her company was decimated in less than a month. She was even convinced to fire her best friend and business partner of ten years. A decision she later fixed by bringing her back in AFTER ridding herself of the Bully investor.
What to do: When faced with The Bully you will feel it immediately. Unlike the more slick tactic of The Salesman, The Bully comes in hard, fast and loud. My best advice is that regardless of how much money, influence, or power The Bully seems to have, no matter the level of clout your business colleagues think The Bully brings to the table, IMMEDIATELY stop this person in their tracks by saying….loudly, “HEY, I don’t need you coming in here to tell me how to run my business. If you want to invest I suggest you sit, learn and stop being so forceful. We don’t work that way around here!” If you are having dinner, for example, with The Bully, and they quickly fire off questions that it seems you will always answer wrong, this is a huge indicator that you are being hit hard and should exit quick. Make a statement like the above and excuse yourself and your team. (note: ALWAYS take your team with you. Leaving behind even one leader with The Bully can cause a massive problem in the group.)
3. The Monetizer – If you have started a company in any sector over the last few years you most likely have heard this in a meeting or two with potential investors, “How and when will you monetize?” And while that is a good question the third and very lethal type of investor you must avoid is The Monetizer. These people have one thing and one thing on their minds, money. They want to realize the fruits of their investment fast and hard. Often The Monetizer will want you to compromise your standards, culture, employees or fellow leaders in the name of making money. You will know right away because the first or nearly first question out of their mouth is about money. These investors also want to realize their investment fast and often with a loss of massive equity.
What to do: The Monetizer is simple to stop fast and with the right statement they will leave you. Unlike The Salesman who will keep trying to convince you or The Bully who will rip your team apart with aggression, The Monetizer wants nothing to do with a company that is not focused solely on making money. If you value your brand, product, service, team and fellow leaders/founders, all you need to say to The Monetizer is, “Our focus is on building a great company and slowly, over time, we will make great income. Right now however we are focused on team, product (or service) and structure.” This works because it bores The Monetizer to death.
4. The Investinator, the combination – The most lethal of all the bad investors is The Investinator because this investor is a lethal fluid combination of al three. He or she invades your company like a virus and with each new team member they meet they work using the skills of all three bad investor types when needed on demand. For example, The Investinator will sit in a leadership meeting and systematically sell (The Salesman) your leadership team on how important their involvement and why it is urgent they invest to “save” you. Then at a meeting with key team members they will ask a barrage of questions (The Bully) to make your team feel inferior and like your fellow leaders are not intelligent enough to lead them to success. Then they will invite you, your team, and perhaps partners outside the company to a dinner or lunch they pay for (the Saleman) to begin to harp on making revenue, and driving profit. (The Monetizer). Like a carefully crafted holster holding the weapons of choice, The Investinator prepares to attack your company from the inside using precision and care. They sell the team on their involvement, infuse ill will between your leaders and then demand a moneymaking strategy immediately after signing. The Investinator is dangerous on a level you can’t imagine because to your face they are smart and sell you, then in a moment’s notice they turn on you, your team and your company.
What to do: Unfortunately, if you let The Investinator into your company the way back is difficult. Why? Because by the time you let them in, your team has been abruptly and largely infected. It will take you isolating the entire team from the top down, in a forum for logical and thought “reset” conversation AWAY from The Investinator. You will now need to become a bit of a MI-6 agent infiltrating every part of your own company in secret away from The Investinator and his or her allies. This is difficult work and often fails. So the best advice to avoid this investor is to follow the above steps for any signals of the three bad investor types. Act fast and keep your team close.
Example: A perfect real world example of how I have actually had to fend off just such investors came in my recent investment and launch of IONvape.com. Right away at launch a “Big Money” guy contacted me. In the first VERY expensive lunch he paid for (The Salesman) he immediately worked to “teach me” that I needed his involvement and I MUST, as he put it, “act fast.” He then asked to conduct some needed meetings with my existing team to get a “feel” for the company and when I refused he started hitting me with a barrage of rapid-fire questions (The Bully) to prove me wrong. What happened next was beautiful because I had already prepped myself for this type of investor. I simply stood up, said thank you for lunch, and told him we would call him after we met with other investors. His reaction was priceless as he said, “I will need you to tell me now if we are moving to a next level or not so I can make my decisions.” Trying not to laugh out loud I remembered some advice my father once gave me, “If someone needs the answer now then tell them it is no.” So I did and left. Disaster averted. In the end we found amazing investment from good sources and launched our crowdfund for further raise on schedule. Mission accomplished.
Your company must be doing something right or they would not be there.
Something to remember about your company and investment, if you have an interested funding source sitting in your conference room or office ask yourself why are they there? It is not because your company and all you have built are a failure. Despite how bad the bad investor attempts to convince you that your company is, that person is sitting with you to talk investment BECAUSE your company is already great at something. You got their attention not because you and your team are a gaggle of idiots. You got the attention of the investor because they want to put money into your organization for some type of benefit. This point is something you must remember when you sit with investors so you can have the discernment to find a good one.
So how do you find a GOOD investor.
The key lies in your goals. If you are clear about your company and your goals then you will find people who, either with an institution or individual, want to invest with you.
Remember, good investors don’t have any interest in destroying your team, changing founders, firing leaders, quick money making measures or to be in charge. In fact the best money I have ever received from investors, including most recently, came from people who believed in the team’s long-term vision and sought to support it with both funds and advice. Good investors also NEVER want to be in charge or to force their opinion in the name of “protecting” their investment. Instead they spent a great deal of time up front with the team building trust, camaraderie, authenticity, and understanding. Good investors care about people, culture and common goals. They themselves have often been leaders so they understand how important a team is. Lastly, the best type of investor you want is the one who wants to build a long-term sustainable company that is focused on smart goals, exciting developments, and let’s you and your team continue to build on what you are doing that is working. These good investors know that if they mess with the current successful system instead of support it they run the risk of damaging it irrevocably. While you may all see an “exit” strategy, the good investor does not focus on that as the end game. They understand that through building a great company, with key loyal team members, and a great product or service is how a company wins.
Coming next in this series:
2. Leadership – The good the bad and the best
3. Goals – What you Focus on is What you Get
4. Competition – Why it’s not real and how to really thrive
5. Control Freak – How to avoid micromanagin