Checklist: 14 Red Flags Every Investor Looks For
What investors are looking for in a company
If you are looking for capital for your company, be aware. There are red flags that can cause an investor to put the kibosh on your funding round.
Most, if not all, of these are preventable. Heed this checklist so you don’t become that entrepreneur who says, “I wish I knew then what I know now.” Remember, you can’t un-ring a bell.
5 business red flags investors look for
- Litigation involving the founders, company or key management
- Intellectual property issues
- Pre-existing agreements with employees, vendors, partners or shareholders
- Complex shareholder agreements
- Capital primarily going toward paying off liabilities
9 personal red flags investors look for
- Arrest or convictions
- Family team of husband, wife & other family members
- Ethics or character concerns
- Non-competitive compensation requests
- Un-coachable negotiating style
- Reluctance to hire/compensate miss
- Non-compliance with work permits, residency, employment authorization document (EAD)
In some cases, the items on these lists can be explained. Human beings make bad decisions. Sometimes we trust the wrong people or make the wrong choice. Circumstances often cannot be controlled.
And in life, many of us would agree that many well-intended people who made mistakes deserve a second chance.
BUT, there is already so much inherent risk in every startup’s business plan, that when it comes to running a business, being fiscally and ethically responsible to employees, customers, business partners, and investors, the standards are incredibly high.
If you want to be a successful entrepreneur, be coachable. Ask questions. Find the right mentors and advisors and take their advice—and avoid doing anything on this list.