How do you obtain a repeat investor when the investment goes south?
Losing money is not fun. Losing someone else’s money is a worse experience. I have been in situations where people signed one thing and stated the other. No investor cares about their contract when they lose money. The investor wants their money back. When push comes to shove most people want their money back. No one enjoys losing their money. I have watched people smile when times are good. When times become challenging these same smiles turn to spite. What I have learned in bad situations is people do not care about contracts. People do not care about the handshakes. People do not care about the straight forward candor or the degree of honesty you have.
People care about their money.
People will call you “brother” (guys). People will call you “sister” (gals). People will call you their “family”. You will be hosted and celebrated while returns exist. You will become demonized when returns dry up. You will also become the source of the problem when money is no longer available. When a loss starts to appear people stand up from the stands and walk out before the end of the game.
So if you are a player on the field of the Professional Entrepreneur how do you keep your crowd?
Does this sound like a somber article?
All writers talk about is their successes. No one wants to let their failures come full front and center. In order to have a game plan to win you have to tell someone how you have lost. This article is about confronting the truth about accepting investor money. If you don’t like the consequences of this — don’t do it. Figure out a way how to start up your own venture with your personal assets if this truth is too hard to hear. Investors are not on any team. Investors are on the team that makes them money. The team that loses money is not the Investor’s team.
So the central question is, “How do you get an investor to become loyal despite a loss?”
In one of my former articles I made mention to the single “tie” I had in my record. This tie was a product of “smart structuring”. Let’s look at this a bit more.
Smart Structuring At Work
I was wise enough to record what is called a “Consent of Judgment”. I also made the recipient sign a “General Release” that contained indemnifications and waivers. I required the investment recipient to lodge a UCC Filing Acknowledgment. Sound pretty strict? I was not done there. I then required the recipient to execute a “Conditional Deed of Transfer” on assets the person was holding. This Conditional Deed of Transfer would be executed upon a 7 day default. (Yes ladies and gentlemen I only gave the guy 7 days to be late)
This structure was so “tight” the only thing that could prevent recourse was outright criminal activities (i.e. pure fraud). I was able to leverage the person enough to ensure a work out when the investment non-performed. It was always a “weekly” negotiation. My negotiation always centered on “how much” could be sent.
The thing was…the person always sent money.
When my former investor saw non performance they were “relieved”. The investor was relieved that I had set up such a strong accountability structure. Forcing accountability meant the person did everything they could do to get their obligations repaid back.
I have found that when people are interacting with one another they appreciate “all you can do”. Literally you have to do everything you can. You have to show your investor with your “actions”. Failure can be pardoned when an investor sees blood, sweat and tears. Especially when those blood, sweat, and tears are for their benefit.
People appreciate effort. More importantly people appreciate seeing you actually “do” something. Too many times I hear and see what other start-ups do when things go south. The person points the finger, blames the market, and simply tells the person it “didn’t work”.
I am not saying ventures do not work. A lot of times ventures will not work. The difference is how the entrepreneur deals with the failures. You must identify a party who is not over leveraged (i.e. has assets separate from the business) and you must show legal recourse at work to recover a loss.
Sometimes the legal recourse will still yield nothing. There is no guarantee recovery of principal can be achieved in a deal. There is something that can be guaranteed in every entrepreneurial venture. The guarantee is simple. Find a business that is 1) not over leveraged, 2) has tangible assets, 3) is coming from someone with some form of net worth and 4) makes the person personally responsible for their financial decisions. When you do these things investors will get advice on your actions. If you do things properly the third party advice should be, “Wow. This person really did everything they could to protect you. There’s not much more they could have done to look out for you. It’s definitely not negligence on their party.”
When investors realize that you structured a deal better than 99% of their competition they will appreciate you. If you can recover a good portion of the investor’s principal investment, these investors will give you a second chance. If you keep losing then no good structure will save you. Eventually you will be dropped. If you want to get a repeat investor after failure, do yourself a favor. Do some “Smart Structuring”.
Then actually “do” something to make it right. You will be surprised who will stay loyal after a failure. You might even get a bigger investment after your loss.
About Christopher: Christopher Knight Lopez is a Professional Entrepreneur. Christopher has opened over 7 businesses in his 14-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM) and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license. Christopher also has his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 29 countries, raised over 50mm USD for various businesses, and grossed over 7.5mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at www.christopherklopez.com