Investor Involvement, Due Diligence & Safeguarding of the Business

[Brrr]

Long story short, somebody wants to invest in my business. From what I gather, he's a guy who has finished his career and is happily retired. I get the impression he is somewhat bored and he is looking for ways to put his money into various things and keep himself busy.

He approached me as he saw that I was doing well in the middle of the pandemic and wanted to chat with me, he had said to one of my staff members "come speak to me if wants investment or is thinking of growing". I'm at a stage where my cashflow is good, but as soon as I build up any cash reserve it gets dumped into the next project and I end up back at zero but then build up the next pot faster. Basically, my growth is as organic as cow shit. It's growth, but I now feel like access to capital is my current bottleneck.

I spoke to this gentleman and he seemed very credible, I only had his word of course, but he detailed his long career abroad and his involvement in managing and running companies in the Middle East (although he is English). I told him my story and we clicked well enough. He seemed to pass a lot of initial bullshit detectors and there wasn't any "selling", not of dreams or successes ("too good to be true") just general conversation. He didn't seem to imply that he wanted to get involved with the company's decision-making or even buy equity, he has offered to lend me some money for one specific part of my business development (production) and in return says he would want some form of written guarantee, drawn up by a solicitor and to be involved in some capacity rather than just be used as an ATM (my words).

Now, I am a very skeptical person, I don't even trust my left hand, but my initial belief is that this guy is genuine. I don't see the "scam" if he is the one lending money to me. He comes across as someone that just wants the kudos of being involved early with a growing company/entrepreneur and that he can look back at being someone that helped me get on my way in the early days. From what I understand, there are also mechanisms to invest in businesses and get big tax advantages in the UK (SEIS), although this is not something he mentioned at all.

I will be speaking to my accountant and try and do some personal research on the guy, but I am still very green in this world of entrepreneurship and I am happy to second guess myself and do everything I can to protect everything I have worked hard to build.

I would love to know what forum members experience is in this regard, if you have any words of wisdom on getting partners & investors involved in your business. Good stories, bad stories, boring stories.

The particular areas are:

• What kind of due diligence should I do before working further with this person?
• What is the "worse case scenario" of borrowing money from someone? (other than obvious knee breaking)
• What legal protection should I be looking to get? (I can only think of having a personal solicitor draw something up and a separate one to review it)

Cheers in advance, I really want to avoid having to make a "How I got scammed out of owning my business" post in 6 months time

 

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[Alxf]

He comes across as someone that just wants the kudos of being involved early with a growing company/entrepreneur and that he can look back at being someone that helped me get on my way in the early days.

Although I don't have any specific experience with your situation, this part above confuses me.

If there's no obvious, clear, selfish motivation on his part.. then there is likely to be a non-obvious, hidden, selfish motivation.

After all, he is not a charitable organization, and people rarely just throw around significant sums of money just to 'help out'. Help out and be compensated accordingly, sure, but just make sure you know understand what his motivation is.

Would you do the same in his situation?

 

[sparechange]

Do you really need cash for production? How about increasing sales to fund it yourself? Save yourself a headache

Good luck!

 

[Brrr]

Although I don't have any specific experience with your situation, this part above confuses me.

If there's no obvious, clear, selfish motivation on his part.. then there is likely to be a non-obvious, hidden, selfish motivation.

After all, he is not a charitable organization, and people rarely just throw around significant sums of money just to 'help out'. Help out and be compensated accordingly, sure, but just make sure you know understand what his motivation is.

Would you do the same in his situation?

Thanks for your message, definitely one of my concerns but I like to think if I was in my late 60s and retired and I was worth 5-10M+ I would throw around a few 50-100k investments to help young entrepreneurs grow their businesses and keep my brain sharp.

I think he is trying to make sure I don't do anything reckless with the money. This is actually my biggest concern, having someone that is going to put brakes on me leading to me missing out on opportunities. But I also don't want to make mistakes just because of arrogance and inexperience.

Do you really need cash for production? How about increasing sales to fund it yourself? Save yourself a headache

Good luck!

Unfortunately yes, I've reached a bottleneck for production so I can't increase my sales without increasing my capacity. But sinking money into a new production facility leaves me without money to open more retail outlets to increase my sales (to justify my production capability).

I'm in this chicken and egg situation with demand & supply. Times like these make me very jealous of you internet money people and your easy scaling.

I can either wait 6 months and then have enough money to do both, or try and get some form of cash injection now and here banks are only lending if the government is willing to pick up the bill if it goes tits up, they don't even care that my business will have grown 500% during a pandemic.

But thanks for you message!

 

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