Bringing in high-powered investors can blur the vision entrepreneurs have for their start-up businesses.
One successful businessman who has been through the seed capital and rounds of growth funding from investors argues the experience brought chaos to online freelance portal people Per Hour.
Xenios Thrasyvoulou set the firm up and within a year raised £500,000 funding from business angels – and five years later had around £6.5 million sitting in the bank to finance global growth.
He argues that thinking small and keeping control is much better than taking wads of cash and orders from investors who may have an alternate vision for the business to the plans of the entrepreneur.
“We had a team of six running the business,” said Thrasyvoulou. “Along with the money came a much bigger staff of up to 50 plus a board on non-executive directors drawing six figure salaries.
Investment burden
“Targets were imposed that meant revenues needed to grow by six times year on year and I was just not comfortable with what the business had become.”
Thrasyvoulou argues entrepreneurs are better off not taking huge sums of money.
“Other things matter, like setting realistic expectations and keeping control of your business,” he said.
Business angels are looking for profits and sometimes look at a start-up business from a different angle than the entrepreneur trying to get an idea off the ground.
Thrasyvoulou made the decision to trim his staff, set easier to achieve targets and not to relinquish his shareholding in People per Hour.
Other businesses have suffered under the burden of multimillion pound angel investments on both sides of the Atlantic.
Groupon, the discount offer site, attracted attention of angel investors who three money at the project.
Fast moving
The market capitalisation valued the business at almost £8 billion and shares hit a peak of $20.
But the business foundered as other companies copied the Groupon model and chiselled away at their customer base and profits. Now, Groupon shares are trading at around $13.
One of the problems of angel seed capital is investors often want to scale up the business too quickly. A small business running a tight ship on limited funds and an effective team can lose stability with millions in the bank and a fast-growing corporate presence.
Thrasyvoulou argues investors brought chaos to People Per Hour.
“Entrepreneurs should fight to keep their business and should not be scared to say no to big investors,” he said.
