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30. Investors are Partners


Welcome to the family!

Investors in your company are partners in your business. If you don’t want any business partners, plan on funding your company yourself. If you must raise money, then live with the fact that you will have partners and treat them as such.

Legally, your investors will have specific rights associated with their ownership.

If you sold convertible notes, then those investors will start out as debt holder, until their note converts into equity, which then makes those investors shareholders. If the date on their note arrives before you’ve converted their shares (which is typically predicated on raising equity from other investors), the note holders can force your company into bankruptcy, force you to sell it, and force you to take steps that are solely in their interests, not yours.

For your shareholders, depending on which state you incorporated in (in the U.S.) and the terms of your agreement, they will have voting rights on specific corporate decisions, such as raising more money and selling the company.

Investors may demand to have a seat (or two) on your board of directors. They may demand the right to approve the hiring of specific employees. They may control your salary and ultimately may control whether you remain employed at the company.

In all this, the personalities and values of the investors are important. Great investors provide advice, helping you make the big decisions that make or break startups. Good investors stay out of your way, letting you run the business as you see fit. Other investors get in your way, push their own agendas on your business, waste your time, and, in the worst cases, wind up wasting your time and money in lawsuits and other legal skirmishes.

As much as you want and need money to fund your business and as hard as it is to raise, take money only from investors you want in your business.


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