Susan, I’m scared. My husband wants to start a business using some of our retirement savings. He thinks that it’s better not to drain our personal savings in case we need extra funds for emergencies. He also says that if we don’t invest a lot of our money in our business, then investors won’t invest a lot of money. Is he right?
Here’s my fast answer to the most important question you have raised here. And that is NO! Do not invest your retirement savings in a startup.
Retirement savings are for your retirement days, not startup days. Plus, it is one of the few personal assets that can’t be touched in bankruptcy proceedings. Again, don’t do it.
Now to your second question. Will investors decide to invest or not invest in your company based on how much you have personally invested in your company? I think your husband has over-stated the expectations of investors.
Yes, investors like for entrepreneurs to have some “skin in the game” but other factors matter more.
Angel and venture capital investors will first focus on the viability of your business plan, the anticipated speed of revenue and earning growth, projected profit margins, customer demand for your company’s products or services, your management team and the strength of your competitors.
Despite reputation, most investors in the venture community do care about the company founders. They do not want the founders so stressed out by personal financial worries that they can’t implement the company’s business plans for growth.
My strong recommendation is for you to first present your business plan to investors. Listen closely to their feedback and demonstrate a willingness to reduce the perceived risks of your startup through partnerships and other strategic alliances. Like you, investors won’t want to write checks until they are convinced they can get their money back with a profit.