Let me tell you the story of the first investment made by a newly organized formal group of angel investors.\u00a0 It was thrilling for these angels to find a young entrepreneur with an idea for a business that seemed so destined for greatness that the angels invested over $1 million on the condition that the group receive two board seats and one observer seat on the start-up\u2019s board.\u00a0 The young, eager entrepreneur agreed immediately and the business was launched, well funded and anticipating great profits.<\/p>\n
As the business expanded into a second city and then planned expansion into a third, there was a rift that became evident between these angel board members, played out in front of the CEO.\u00a0 The angels argued about whether the expansion was too quick, requiring additional money, or should be slower and bootstrapped with profits from the first city\u2019s success.\u00a0 Finally agreeing upon expansion at speed, the angels raised more money and encouraged the CEO to accelerate the expansion, which the CEO did with enthusiasm.\u00a0 It did not take long for the company to again run out of money, and for the board to split over the next moves (since the first city continued to be profitable).<\/p>\n
[Email readers continue here…] <\/span><\/em>The angel investors could not raise the next, larger round to finance the shortfall and further expansion, putting the fragile young company at risk for following the advice of its board.\u00a0 In the end, the company had to turn to a wealthy individual investor who took control of the corporation as his price for saving the company.\u00a0 Had the angel board members been able to agree upon a financeable strategy for growth, the company might have been immensely successful.\u00a0\u00a0 To put an ending to this story, the entrepreneur followed the suggestions of the new investor just as he had the angels, and accelerated quickly into more cities, again running out of cash.\u00a0 The wealthy investor in the meantime, unknown to the CEO or the board, ran into personal trouble with real estate investments, and could not make good on his promise to further fund the company, which found itself unable to meet its obligations and ultimately was shut down, causing a complete loss for all.\u00a0 Bad advice taken by an enthusiastic and compliant young CEO was the root of the cause, compounded by circumstance.<\/p>\n The lesson is for any CEO to filter all advice through the strainer of good reason, taking that which seems reasonable and rejecting that which is wrong for the company or the times.\u00a0 By not putting up any argument and being completely compliant, the CEO ceded control of the company to outsiders who gave bad advice.<\/p>\n","protected":false},"excerpt":{"rendered":" Let me tell you the story of the first investment made by a newly organized formal group of angel investors.\u00a0 It was thrilling for these angels to find a young entrepreneur with an idea for a business that seemed so … Continue reading