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When Turning Down Money Can Be a Smart Move

Investors who come knocking can be the best form of flattery for a startup, but here’s a little secret: You can say no.
Founder, Managing Partner, CleverTech
October 21, 2015

You’ve got a great business idea, and you’re lucky enough to connect with an investor who’s interested in funding your venture. Sounds like every entrepreneur’s dream come true, right?

Well, not necessarily.

Don't let all those dollar signs blur your vision. It might sound crazy, but it’s not only OK to occasionally turn down investors—sometimes, it’s also the best option.

Clear Your Vision

There’s a huge difference between getting funding for an idea and getting funding for a working project. Beyond the stage of your venture, however, there are a number of other reasons why investor funding might not be right for you:

  1. It comes with crazy conditions. Investors know that funding a startup is inherently risky, so they’ll often try to minimize the gamble by getting something for their money—even if your venture fails. You may not want to agree to a deal that makes you uncomfortable. If your idea is worth investing in, a better offer often comes along.
  2. You already have funding. I know the idea of collecting as much funding as possible sounds appealing, but if you end up indebted to too many people, you could quickly become engulfed in a black hole of debt instead of focusing on growing your business.
  3. You don’t need it yet. If you’re still working from your mother’s basement with two friends, you don’t need an extra $50,000. Sure, it would be nice to have those funds on hand if you need them, but too much money immediately could bog you down in the long term. By the time you look for a significant investor, you should probably have already launched something. It’s safer to endorse a product than it is to subscribe to an idea.

There are several signs that you'd likely be better off retaining full control of your startup and growing it through other means. Here are four keys that it might be best to wait:

  • You have no staff.
  • You have no users.
  • You have no MVP.
  • You have no long-term goals.

If any of these sound familiar, then you’re probably not ready to accept investor partners.

Explore Other Options

While you may not be ready to accept investor partners, that doesn’t mean you shouldn’t pursue other channels of funding or support. Consider the following:

  • Early exposure through funding. Think crowdfunding. This option usually involves a social media component that can build early buzz for your business and potentially attract media attention.
  • Scholarship or grant programs. If you’re a student, check out your school’s scholarship or financial aid opportunities. Additionally, private organizations are often interested in building up new businesses.
  • A strong support system. Success doesn’t simply involve money. Friends, family and crowdfunding supporters can be key in keeping up your spirits. After all, launching a startup is hard work, so surrounding yourself with people who are emotionally invested in your success or failure will give you a sense of duty to help you through the tough times.

Of course, that’s not to say you should never pursue investors. The thing about running a successful business is that it’s all about timing. These three signs indicate it might just be the right time to entertain investors:

  1. Investors are contacting you. If investors are getting in touch with you, they know you’re something special. Don’t get overly excited by the first offer, though; keep in mind that others will follow.
  2. You're scraping the bottom of the barrel. If you need funds and you can’t see any other way around it, it might be time to approach an investor.
  3. You have a set plan in place. If you have a solid plan, a loyal team of developers and designers, and a great idea, then go for it. You’re already ahead of the game, and smart investors will recognize that.

When offers start flowing in, make sure you think long and hard before you accept any of them. Always keep in mind that avoiding investors allows you to maintain full control over the destiny of your startup. That way, your decisions and timetables are just that—yours—and not those of your shareholders.

Kuty Shalev is the founder of Clevertech and a member of Young Entrepreneur Council, an invite-only organization comprised of the world's most promising young entrepreneurs. 

Read more articles on funding.

This article was originally published on October 21, 2014.

Photo: Getty Images
Founder, Managing Partner, CleverTech