Wednesday, July 6, 2011

There is no such thing as a silent investor, or a silent partner

First Posted on | Mowgli Foundation on July 4th, 2011
by Ghada El Kurd

There is No Such Thing As A Silent Investor, or a silent partner, and that’s why I turned down 110 thousand US Dollars.

Yes, I really did turn down 110 thousand dollars cash-flow injection into my relevantly new company. As tough as things were at the time, with limited to non-existing funds, trying to build up a wider network and client base, having just bought out a partner, and above all, managing a big project that required dedicated and costly resources; when an investor came along offering to inject 110 thousand dollars, as a silent partner. I said No, thank you!

I will explain exactly, how I came to this decision as a result of my firsthand experience, although my knowledge and decision also were supported and came by way of observing the businesses and partnerships of colleagues, friends, relatives, clients and other SMEs, whether up close or from afar.

Now, my experience in my own ventures as well my work history in the family businesses, have taught me many valuable lessons over the years. The one that came crashing back into my mind with a neck breaking speed, was that There is No Such Thing As A Silent Investor, or a silent partner.

My first business, was thrown at me, no, really, it wasn’t really a choice at the time, I was barely 18, and dear old father decided that I will own (legally) and run the family’s new venture. Now that may sound impressive and yes, it was really very satisfying to my 18-years old ego; yet, little did I know that I really owned and controlled nothing.

In the first few months, I realized that I did have partners, the head designer who was the real talent was one, whose salary was 5 times mine and who banked 50% of net annual profits. But it was fair as he was the talent, and the whole business was built around his talent and skills. And naturally father was also a partner, actually the main partner for that matter, as he had the last word on everything. I was just the owner/manager! I accepted that, and tried to learn from both as much as I can.

Father started getting me involved, periodically, in our other businesses, especially when he’d be travelling. Little by little I came to understand the dynamics of the group, and became aware of the existence of investors, to whom we were accountable, and whose involvement gradually progressed to the role of active decision making partners. Conflict arose, and things started getting too chaotic, key personnel were at loss too, as they knew not whose orders to carry out. It was a total mess, especially that those investors-evolved-into-partners, had very little or no idea about the nature of our businesses, management or even a basic understanding of the markets at the time.

Essa El Kurd, my wise father, realized that the probability of losing everything was becoming a very real and high business risk. He boldly decided to buy everyone out, each and every investor and partner, which resulted in a 7-figure debt. We planned and implemented the buy outs over a period of 18 months. With every buy-out we regained more control of our own businesses.

And for the next four years, the business I managed, was our cash cow, it was what kept a roof over our heads and those forty other roofs over our employees’ heads in all of our businesses; Those other businesses were running successfully and making profits, but all profits went to paying out the debt we incurred in the buyouts.

As for my unofficial partner, well, he was the only partner we had by that time, we were investing in him and his talent, and as managing investors we had absolute control.
Know that if you are looking for an investment, whether it’s a kind old Uncle, an angel investor, who simply likes to get small businesses off the ground or a venture capitalist, without being held accountable to your investor or think they will assume the role of silent partners, you are seriously mistaken.

Sooner or later, they will want to know what and how you are doing, and increasingly more often, and gradually you will see them start to get involved at one level or another, regardless of the promises of letting you run your business, they WILL be involved, even if it’s just a phone call once in a while! And with the first mishap or trouble, even if it’s a minor one, you can expect even more communication, physical presence and active involvement. Every investor and every “silent” partner will want to be sure their money is being used and managed properly. And that their investment is in good shape, and it is their right.

I repeat, there is no such thing as a SILENT investor or partner, that is the main reason why I declined the investor’s tempting offer which could have saved me a lot of time and hardship in my business.

I know that raising outside investment is a difficult and time-consuming process. It is not for everyone though. But without some basic understanding, it can not only be extremely frustrating but could end in angry failure. SO if you are looking to keep majority control of your business, seeking outside investment requires proper due diligence and study of: the reasons, purposes, alternatives, investment type, terms and conditions, shares, management, stage where at investment is required, your team, and many other criteria that should be considered, but above all, don’t be blinded by money.

Don’t be blinded by the investment value or dollar amount that you need that the investor is about to make available to you, that you do not see the investors themselves. Know your investor, study and understand, their character, their goals, their interest in your business, and their expectations. Expectations also include how often and how to report back to them, division of shares, roles, and even additional investment if required.

Think before you jump, know what you both want and need, plan it well, put it in writing; and remember it is still a partnership just as it is a human relationship communication is essential to your mutual success. SILENT investors/partners do not exist.

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