For the sake of your business in the short term and for your chances of getting further investment in the future, it’s worth noting what not to do with your investment.
Don’t take a big payday
If you’re a founder who has been bootstrapping their business in order to gain investment, it might be tempting to spend a large portion of your new investment rewarding yourself; even if this might seem like a perfectly reasonable salary because of all the work you’ve put into the business, it’s ranked high in the list of what not to do with your investment.
Don’t be tempted to shower yourself with praise and crisp notes either. While you can, under certain circumstances, allow yourself to take a wage from the company, be advised that using up your investment by spending it on yourself could be very short-sighted for a number of reasons.
Firstly, if you run out of cash before you have succeeded in making your business profitable then you’ll have ruined your chances of taking a salary from that business permanently. Secondly, future investors will be less likely to invest if they feel that you will use their money to enrich yourself rather than to grow the business and give them a return on their investment. So in short, show some restraint when deciding to up your own personal rewards following investment.
Don’t stick obsessively to the plan
In order to secure investment, you will almost always have had to provide them with a business plan and a pitch for how you will use the investment – not what you may have expected in an article about what not to do with your investment, but it’s true. While this will be a useful guide as to how to use your investment, you should also be flexible to circumstances that might have changed in between making that plan and receiving the investment.
This might mean that a change in the market means you either have to be more, or less, aggressive with your spending than you previously thought. A new competitor coming into the market trying to gain traction might mean you need to spend aggressively on marketing or further development to outmanoeuvre them before they gain a foothold. Conversely, if the economy slows down it might be wiser to conserve your funds for a time when people are more likely to spend their hard-earned money on your product or service.
What else is there in terms of what not to do with your investment? Don’t relax
You might have thought you were hard on yourself, but that’ll be nothing compared to the expectations of your new found investors. You’ll have more people to answer to, and the pressure will increase along with the potential rewards.
More than that, though, this is a huge opportunity but one that you have to really go out and grab with both hands. A first round of investment is not an end-game in and of itself, but rather should be seen as a stepping-stone to gain further rounds of investment and really translate your initial viability into profitability and success. In order to achieve this, you can’t afford to relax but will have to work as hard as you were before you secured investment, if not harder!
So, now you’ve got your investment, don’t simply expect to be relaxing on a beach, sipping margaritas watching your bank balance rise. You’ll need to work hard and be accountable to your new investors. That said, even if you agreed on a plan with them prior to receiving investment, don’t be afraid to trust your own instincts and change the plan if needs be. Work hard, work smart, and work towards more investment.
Raj Dhonota is a pre-seed investor, mentor and entrepreneur
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