Reject an investment offer?? Why would anyone want to do that????
Believe it or not, there’s a lot of reasons to walk away from an investor’s money.
Yes, there are a lot of good investors, but there are a lot of sharks out there. (And not the nice ones on Shark Tank. I’m talking about the loan sharks that try to take everything of value away from you.)
Taking the wrong deal can be a million times worse than having no deal at all. Having the wrong investor can change the course of your business — or can even damage your odds for success.
It’s All About Boundaries and a Win-Win
I’m a Business Plan and Pitch Consultant, and I support several investor networks. In my experience, my clients tend to land the best deals when they know their limits before they have their first investor discussion. Not only does this usually result in a deal they are happy with, but it is also a great way to impress an investor from the first conversation. They love when an entrepreneur has clear decision making skills and can negotiate like a pro!
This also means there are times when you have to walk away from a deal that just doesn’t meet your needs. One of the biggest reasons you may decide to reject an investment offer is equity balance. You should be really careful if someone tries to talk you out of 50% of your business against your desire. And, if an investor wants to have majority control and you are against this, then the investor needs to respect this. If they don’t then you need to see that as a huge red flag.
Offering an investor majority share (50% equity or higher) is a scenario that a lot of people can be okay with — especially if you are looking to be bought out in a few years. However, if you don’t want “out” and you want to stay in control of your business, then find an investor who respects your position and lets you stay in control.
How to Reject an Investment Offer in Person
An in-person rejection should be handled kindly and professionally. You have to be careful not to burn any bridges. Investors talk to each other, and you don’t want to be blacklisted from an investor community for being rude or poorly negotiating.
Be specific about your decline. Instead of saying: “This isn’t going to work,” tell him or her that [your pain point] is one of the areas that is a non-negotiable in the deal, and that you respect their right to honor their own needs on this point. Therefore, you are going to decline your generous offer as it stands.
Example: “Thanks so much for your generous offer of $500,000 for 45% equity! As we talked about before, giving more than 30% equity is one area that is a non-negotiable for me in this deal. I respect your right to honor your own needs on this point. I have to decline your offer as it stands, but I’m sure we will both find someone to better meet our needs soon.”
And, as icing on the cake, you can tack on: “If I come across any entrepreneurs who are doing things that would align with what you are looking to invest in, I would be glad to share that information with you in the future.”
How to Reject an Investment Offer in Writing
You should consider using a simple greeting, thank them for their offer, and let them know that the deal is not the right fit for you. Then — this is very important — tell them whether the deal is still open for negotiation.
Since you are talking on paper instead of in person, your body language and voice inflection aren’t guiding the unspoken parts of the conversation. The reader could assume you are trying to continue haggling or could assume you shot them down cold.
Don’t leave them to assume. State specifically where you are. For example, “As I pursue other investment opportunities, I will keep my eyes open for those who are dealing with entrepreneurs you may be interested in connecting with.” This way, you are closing the door on them without burning a bridge or being vague.
Or, if you are still open to haggling, say so. Tell them that you cannot accept the offer as it stands, but you would appreciate the opportunity to explore a variation that leads to a win-win.
If you want to sign terms with any investor — even if the deal is 100% what you want — make sure you seek a lawyer or legal consult so you can check for any questionable terms or language. Your investor will need to have a contract with you (if he/she does not want a contract, this is another red flag), and you need to have someone look over the contract on your behalf. It can be easy for savvy investors or their lawyers to slide in language into a contract that doesn’t match what you were told. There can also be loopholes that impact your deal based on external factors.
If you don’t have a lawyer, check sites, like SmartUpLegal.com, where you can get a free consult and find someone who fits your needs. A lawyer fee is worth the cost for protecting you and your business and for making sure you always get what you deserve.
Red Flag: Predator Investors
A word of caution: Before you master how to reject an investment offer, make sure you know “when” to. Many entrepreneurs are so eager for a deal that they ignore the warning signs of predatory investing. Wondering how to tell if your investor is not out for your best interests? There are specific signs that indicate you should walk away from an investment offer without guilt.