Taking on an Investor? Read This First.
Bringing an investor into your business can feel like a victory. It means someone else believes in you, and that cash can help you grow faster. But before you shake hands or cash that check, you need to understand the risks.
Money from an investor is not a gift. It comes with strings attached. If you ignore those strings, you could lose control of your company, lose your profits, or even lose the business itself.
Here are the four biggest risks every business owner faces when taking on an investor.
Risk #1: Losing Control of Your Decisions
When you own 100% of your business, you make all the calls. When you take an investor, you now have a partner. Depending on how much they invest, they might get a say in big decisions like hiring a manager, taking out a loan, or selling the company.
Example:
You run a successful bakery. An investor puts in RM100,000 for a 30% stake. Later, you want to open a second location. But your investor says no—they think it’s too risky. Even though you built the business, you cannot move forward without their permission.
Risk #2: Giving Away Too Much of Your Future Profits
Many investors want a percentage of your company, not a loan. That means every year, a slice of your profits goes to them—forever. If your business takes off, that slice can become worth far more than the money they originally gave you.
Example:
You need RM50,000 to buy new equipment. An investor offers the money for 25% of your business. Five years later, your business is making RM500,000 per year in profit. You now have to pay that investor RM125,000 every single year, even though they only gave you RM50,000 once.
Risk #3: Disagreeing on the Exit Plan
Every investor wants their money back eventually, usually with a big profit. They will expect you to sell the company or buy them out within a certain number of years. If you want to build a family business to pass to your children, that can become a major conflict.
Example:
An investor puts money into your family’s hardware store. After five years, the investor demands that you sell the store to a large chain. You want to keep it in the family. But if your agreement says the investor can force a sale, you may have no choice.
Risk #4: Getting Pushed Out of Your Own Company
This is the nightmare scenario. Some investment deals include clauses that let the investor remove you as the boss if the business misses sales targets or if you make a costly mistake. You could end up working for a new CEO in a company you started.
Example:
You build a small software company. An investor puts in RM200,000. The next year, you lose one big client. Revenue drops 15%. The investor uses a clause in your contract to fire you as CEO. They hire someone else to run your company. You still own shares, but you no longer call the shots.
The Only Solution: A Written Agreement and a Lawyer
None of these risks are automatic. You can avoid or reduce every single one of them—but only if you put the rules in writing before you take a single dollar.
A handshake or a verbal promise is not enough. When money and pressure mix, memories change.
What you need to do:
1. Hire a business lawyer who has done this before. Not your cousin who does real estate law. A real expert.
2. Put everything in a written agreement (often called a Shareholders’ Agreement or Redeemable Preference Shares Agreement).
3. Make the agreement spell out:
– Who decides what (e.g., you keep control over daily operations)
– How profits are shared
– How and when the investor can get their money back
– Under what conditions (if any) you can be removed as owner or manager
Final Word
Investors can be amazing partners. But only if you set clear boundaries from day one. The money is tempting. Do not let that urgency rush you into a bad deal.
Before you sign anything, consult a lawyer. Pay for a few hours of their time now. It will save you years of headache—or your entire business—later.
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