One of the important things to do in an investment relationship is to get it started the right way. I already talked about the importance of having a full and frank discussion with all of the parties that are going to be involved. What are the expectations? What are the potential problems? What are we going to do if these kinds of problems arise?
I would actually suggest before you have that conversation, even though it needs to be right up near the beginning of your to-do list, even before that you need to talk to a trusted advisor about what are some of the specific issues that you ought to be discussing with your friends or family so that you can have a full and frank discussion.
I have found that one of the real barriers for people in getting going in their business is they don’t know what to do to get started. They have this idea for their business and they may have way more than an idea. They may have some processes in place. They may have a tremendous amount of skill. They may have sales that are ready to go. They may have a lot of things in place, but they really don’t know how to approach the investors that they’re going to need to get the business off the ground. That will actually just kill some deals. Many, many deals stay right there in that stage, the idea stage.
It’s helpful to go and talk to an attorney and explain what your idea is, what you’re trying to accomplish, what you think some of your potential investment capital sources are, how you are going to approach those sources, what are the things you need to discuss with them, what is your agreement going to look like.
It makes all the difference in the world when you’re going to speak to an investment capital prospect as to whether you’re prepared, whether you have your ducks in a row, so to speak. If you show up for the meeting with the big investor and all you’ve got is an idea and no structure, it’s not going to be a very attractive investment opportunity for that investor usually.
If, on the other hand, you have a plan that you’re ready to execute, that includes an operating agreement for your LLC, something that’s going to provide for your investor to get a return of their capital, maybe on a preferred basis to money that you would be receiving from your business. If you’ve thought those kinds of things out, that eliminates a lot of the noise in the investor’s head which will contribute to concern in the investor’s mind.
There’s just a huge benefit to having worked through those kinds of details right at the very beginning of your investment capital raising efforts.