Securing business investment can be a lengthy and complex process, whether you’re a start-up or a more established business aiming for growth. So if an investor unexpectedly pulls out, it can significantly disrupt the plans you’ve made, and may even make you consider whether you need to close down.
There are specific actions you can take, however, to deal with an investor who withdraws their money. This scenario might start with a lack of response to your emails and calls, which in itself is worrying, and when you finally find out that they’re pulling out it can leave you wondering if your plans will ever come to fruition.
So what can you do when this happens, and are there any common reasons why investors remove their investment from a company?
A downturn in the market can alarm investors if they’re relying on a timescale to receive a return - they might have specific plans for using the return on their investment. A market downturn can also make a business model unprofitable, which even if it’s only in the short-term, might make investors reconsider their position.
Lack of liquidity
Investors rely on their own liquidity to make investments. If they’ve timed an investment badly, or are unable to access the necessary cash, they might have no other option but to pull out.
Friction between yourself or your business partners and the investor
If the investor is involved in managing the business, there may have been a disagreement with you or your business partners - maybe over an operational or financial matter. If the disagreement cannot be resolved, they may feel the only way forward is to withdraw their investment in the company.
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Cutting down costs as much as possible can help the business survive when an investor withdraws their money. This includes cutting your own and other directors’ salaries, and making sure that the payments going out of the business are absolutely necessary. If yours is a product-based business, you could also revert to your minimum viable product (MVP), at least until the withdrawn investment can be replaced.
Tell your staff
Let your staff know what has happened so they can avoid making non-essential payments. They might also be able to offer fresh ideas for attracting new investment, or for dealing with the situation as it is now. Keep them informed and get them to help you plan out your response to different scenarios, such as securing only some of the original investment, as well as the worst-case scenario of having to close your business down.
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Contact your other investors and seek new investment
It's vital to let your other investors know what has happened, and most importantly, to make sure that they're still on board with your plans. If they are, you could ask if they would be willing to make up the shortfall in exchange for additional equity, or perhaps for preferential terms.
Additionally, your existing investors may know of someone who is looking to invest in a company. If not, go back to square one and seek fresh investment, as this might be the only way to resolve the issue in the long-term.
If you would like more professional guidance on what to do when an investor pulls out, please get in touch with our partner-led team at Real Business Rescue. We can offer you a free, same-day consultation to establish your best options, and operate a broad network of local offices around the country.
Real Business Rescue are here to help
Still unsure whether liquidation is right for your company? Don't worry, the experts at Real Business Rescue are here to help. Our licensed insolvency practitioners will take the time to understand the problems your company is facing before recommending the best course of action going forward based on your own unique circumstances.