Should you tell your investor that you don’t need money?

Here is an interesting question for most people. Let’s suppose that you are doing a start-up and you have enough funds to sustain the entire team and product development. So, one day, you finally meet up with an angel investor or you decide to go and look for investors. Without hesitation as a brash youth, you tell the guy that you don’t need his or her money but you want his or her contact in later stages. Is that a wise move? It may be interesting to examine the different schools of thought on this simple question.

• Never reject money that is coming to you: That’s the first school of thought. I was told by my business mentor in the UK that I should never reject money. If an investor offers to put money in your company, you should accept the deal with favourable conditions that benefits you and your team. The key is to negotiate. In his opinion, if someone wants to put money in you, it means that you do have something there. So, the instinct is to work out your own valuation of your start-up and make the other guy go for a lower equity stake. Do note that this reasoning may be different in Singapore. There are lack of deal flows and everyone would just go for anything possible. Hence it is the onus of the entrepreneur whether they should accept the investment. Remember, venture capitalists can be quite difficult to deal with if you really accept their money.
• If you reject them now, it’s unlikely that they will help you: In a recent business presentation, a team told the judges that they are not here to seek investment but just to see whether their idea works or seek contacts if a future investment is possible. During the judges’ review, a business lecturer said that he would have failed them on the course. Apparently, in the US, if you flat out reject a deal when you got a presentation, it means that you are not giving the investor any face. Besides, think about if from the other perspective, you are asking for it. You tell people that you look for money and get your meeting. Then you go to the meeting and snub the interesting parties that you don’t want the money but their contacts. Do you think that they won’t be offended? Even if you want them to come in later, they may not take you take seriously. It’s the business of credibility and forthright that comes into play.
• Why not? We don’t really need money: This is the opposite end. If you don’t really need money, just keep quiet and move forward with what you do. If you seriously need to tap the interests of the investor, you should be in the position where your product has been talked about by the customers and gaining traction from technology blogs like TechCrunch. You can try to go to a VC and do exactly the situation I talked about in the previous bullet point. It may end up in another situation. Perhaps, the VC won’t be offended and decides to be your mentor, so that he or she can be kept in the next round (or given priority for first round investment).

Whatever the situation is, you have to be careful when you tell someone that you don’t need money. You might accidentally offend someone in the process. If you seriously don’t need it, don’t go to the investors and set up a meeting to waste their time. You might be better off to get the product out first and then go to them after that. Of course, the decision lies with you, the entrepreneur.

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