Investors

Should you partner with just any investor?

Here's the million-dollar question: Should you accept a financing proposal that goes against your interests as a founder, even if it's your only funding option? Personally, I faced this dilemma and hated being in this situation. Even six years later, the experience still leaves me bitter.

It ultimately depends on how desperate you are to raise funds. If you have already spent a significant amount of money from your personal savings or from your initial backers, you will likely want to persevere. If you have limited alternatives, you may feel compelled to accept the proposed term sheet regardless of the associated cost. While this may seem right in the moment, it often proves to be a mistake.

The harsh reality is that the lack of options you're facing is a direct result of your venture not being attractive enough. It could be that your big idea is not as significant as you believe, or you simply lack the numbers to convince venture capital firms that your idea is viable. In this situation, do you truly want to partner with investors who are primarily interested in short-term gains at the expense of both the company and its founders?

Ultimately, the validity of your big idea will determine your ability to attract the right investors. You need investors who genuinely believe in your vision and are committed to supporting you in the long run, helping you execute your vision and grow your business.

Initially at flyiin, we were fortunate with our investors. The prototype of our Air Travel Marketplace was financed by a highly connected, capable, and enthusiastic angel investor. This prototype caught the attention of both a very influential family office and a recognized hedge fund. The proposed terms were highly satisfactory from a founder's perspective, offering good control and economics. However, as you know, this term sheet never materialized.

Our luck changed with the new investors who financed our Airline DirectConnect Platform 18 months later. From the first discussions, I sensed we weren't dealing with founder-friendly individuals—and my intuition proved correct. Their proposed terms were aggressive and demotivating. Rationally, I should have walked away from these discussions. Yet my loyalty and affection to our original angel investor, combined with my reluctance to forfeit three and a half years of personal investment, led me to accept their terms to protect his initial investment.

Their lack of commitment to our venture became painfully clear during Covid. Initially, they offered to extend their investment, but with even more outrageous terms. When we refused, their only response was to demand that the founders sell. Fortunately, we found a buyer who proved more supportive than our investors. Yet even then, they attempted to claim the entire proceeds, leaving nothing for the founders—an "interesting" position considering their only alternative was losing their investment entirely. It took combined pressure from the buyer and our angel investor to make them more reasonable, ultimately leading to a successful acquisition.

Key Takeaway #16

If you are unable to convince multiple investment firms to discuss a term sheet with you, it indicates that your venture is not attractive enough. In such a case, you may want to reconsider your big idea and potentially end the journey. The worst outcome would be to have the wrong investors with unfavorable terms, which will inevitably lead to an even worse situation down the road.