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With alternative forms of finance having become readily available to businesses seeking growth or seed capital, it’s never been easier for companies to raise funds. But before you think about tapping up the public to give your balance sheet a boost, you should also stop to think about your potential investors.

After all, your investors are not just a source of funds for your business. Once you accept any investment from them, they are inextricably linked to you for the lifetime of your business, and possibly longer. So, it’s important that you consider all the things that they require, to make a lasting relationship like this succeed.

In other words, don’t just think about the funds your business requires; think about how you can get the most out of your relationship with your investors. If you do this, the journey will be a lot more enjoyable and fulfilling for all parties. Here are the key things to consider before taking investment from outside parties.

The first thing to recognise when you take outside investment, is that you have entered, what hopefully will be a long-lasting and fruitful relationship. And first and foremost, for any strong relationship to flourish, you need honesty and trust.

Your investors are trusting you with their money. Those funds are not yours to do with what you will. Those funds are handed across to you in good faith, to act as custodian, in order that they be put to the most effective use for the business. This level of trust demands the utmost honesty from founders.

Beginning with your pitch deck or investor prospectus, everything that you say to attract any investment, needs to be brutally honest and backed up with the relevant due diligence and documentation. Any market research presented to support your investment argument, must include reputable and relevant sources. Your financial projections and sales pipeline figures should be on the conservative, if not ultra-conservative side.

In 12 months’ time, your investors will go back to these numbers to see how you are progressing against your original targets. They will hold you to the numbers you put in these documents, and they will give you a hard time if you haven’t achieved them; so, don’t embellish them.

Talk about your company’s total funding requirement and timescales. Very few businesses can last on just one round of funding. Put your funding plan down on paper from the outset. Tell your investors that you will need more funds in 18 months, three years or whenever. Tell them how much you will need and why you will need it. Give them the complete funding picture and show them that you have thought about the entire lifecycle of the business, up until exit.

If you don’t want your investors getting involved in the day-to-day operations, let them know immediately. Most investors these days prefer to be passive, however some do like to get hands on. If that’s not what you want, then be firm and tell them so. By doing so, you’re showing them from the start, that you are in total control of the business and its outcomes.

Being upfront and honest about your initial plan will allow you to set a strong foundation for your relationship with your investors. An honest plan outlines the parameters of the founder/investor relationship from the outset. Your plan will be the cornerstone of that relationship. Irrespective of a shareholders’ agreement, your plan will be the document that both you and your investors will refer to, as the company evolves. That’s why it is imperative that you are honest, up-front and conservative in your initial forecasts.

Once investors have entrusted you with their funds, do what you said you were going to do with their investment. Build your team so you can scale; add those all-important Advisors; increase your marketing spend. Don’t just sit on the funds for a rainy day; put them to work and go about your plan. Remember you are the custodian of these funds. You are the one the investors are trusting to put them to work. As the business moves on and there may be a need to digress from the original plan, inform your investors. Tell them the business reasons behind the change of direction and the opportunities that the change will present, and get their support.

Finally, as you progress, like any business, you will have ups and downs. It’s easy to report back in the good times, but you need to update your investors in bad times as well. Investors get worried when they hear nothing - no news is de nitely bad news! Make sure you update your investors regularly, at least every six months and quarterly if possible; and give them the full story – good or bad. They will respect you for your honesty and will be more willing to assist in times of need, if they have been kept updated and informed and not left in the dark. They will also be more likely to invest in follow on rounds, when the company goes out for further funds.

If you are looking to bring on external investment, then you need to remember that once you take that investment in, you are embarking on what could be a very long relationship with those investors. You need to be happy that you have the right people involved, even though they may be passive investors, and you need to be upfront about the business and its prospects, from the outset.

Investors understand that not everything goes to plan. Ultimately however, they want to protect their investment and see the business flourish, in the hope it makes them a nice return. This is why any investor/founder relationship must be based on trust and honesty. By looking after your investors and treating them with respect, you will always have their support – even in the down times.

For more information and to become a part of Shadow Foundr’s Private Investor Network and enjoy up to 50% Tax Relief go to

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