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Why It's Harder To Keep A Stable Relationship With Investors After The First Round Of Funding
This article is written by Brian Malika, a Contributor Author at Startup Turkey.
Barbaros Ozbugutu is the CEO of Iyzico, a Turkey-based startup offering the easiest way for accepting payments online.
Most entrepreneurs imagine that getting the first investment package is the biggest hurdle in their enterprise that they need to overcome. For that reason, you’ll get entrepreneurs preparing immensely to make a perfect first impression to investors so as to get that deal done. And of course, with a lot of preparation, chances are that an entrepreneur is bound to win the heart of an investor.
The moment you receive the message that you have been successfully awarded an investment fund, you should be celebrated for a day and thereafter think of the big task that lays ahead of you. This is because winning an investment fund is only as good as the sharpness of your idea and that's what the investors banked the important decision to work with you. But the success of the whole venture is solely dependent on the competitiveness of the entrepreneurs' execution.
After the investment fund awarding the bigger and unprecedented tasks begin. This is when the awarded start-up founder is expected to deliver the transformation that was promised during pitching events.
Sometimes it can be very frustrating because the entrepreneur (s) might still be stuck with the emotional excitement after getting awarded an investment deal for the first time ever but at the same time, the implementation strategy on paper that was promised to investors during the pitching session might not be working on the ground. And that's when some entrepreneurs realize that raising seed or venture capitals is not as hard as compared to implementing the innovative business idea.
But every entrepreneur must understand that it is normal to experience his ups whenever there is a scaling up of a new business idea to a larger market and as such there should be a basis of understanding on how to engage with investors so that expectations are controlled in a reasonable manner.
Therefore, it would be prudent for an entrepreneur to strike terms of the agreement with their investors before the investment fund is pumped towards implementing the business idea. The terms of the agreement should highlight the accountability procedure for the investment so that there is no confusion on the mode of highlighting how each coin has been spent. Some investors will demand to see receipts that have certain features without which there might be a standoff in the project. Also, the agreement should be clear on when will the financial reports be submitted to the investor.
Secondly, start-up founders must agree that within their teamwork who will be the person to communicate with the investors. This will ensure that communication with the start-up founders is well structured to reduce any sort of confusion that might worry the investor.
With the high rate of failure for start-ups that have already received their seed or venture capital being at around 70-75 percent after the first five years of operation, it is clear that entrepreneurs be prepared in everywhere to understand the frustrations that await them after receiving the good news of being awarded an investment fund.