Investor has pulled out of my business

What happens if my company loses its investment?

Getting business investment sorted can take quite some time and can be quite complicated, whether you’re just starting out or already have a business and aiming to expand. 

If an investor suddenly backs out, it can really mess up your plans and might even force you to think about shutting down.

However, there are particular steps you can take to handle a situation where an investor pulls out their funds. This situation might begin with silence to your emails and calls, which is concerning in itself. When you eventually discover they’re withdrawing, it may leave you questioning if your plans will ever succeed.

So, what actions can you take when this occurs, and are there common reasons why investors withdraw their investment from a company?

Why would an investor pull out? Understanding The Reasons!

Investors pull out of investments for various reasons, including:

1. Repeatedly Changes In the Market 

Changes in the market can unsettle investors, especially if they expect returns within a certain timeframe. They may have plans for the returns on their investment. Additionally, a market downturn can render a business model unprofitable, prompting investors to reassess their position, even if it’s temporary. 

2. Lack Of Liquidity 

Investors depend on their liquidity to make investments. If they’ve timed their investment poorly or cannot access the required cash, they might have no choice but to withdraw.

3. Conflict between the investor and yourself or your company’s partners

If there’s friction between you, your business partners, and the investor, it could lead to withdrawal. Disagreements, particularly over operational or financial matters, may arise if the investor is involved in managing the business. If these issues can’t be resolved, they might feel compelled to withdraw their investment in the company.

 

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How to deal with an investor who pulls out?

Dealing with an investor who decides to pull out of an investment can be challenging, but it’s important to handle the situation professionally and transparently. Here are some factors you can consider:

1. Reduce your expenses

Lowering costs significantly can aid the business in enduring the withdrawal of investor funds. This includes reducing your own and other directors’ salaries and ensuring that outgoing payments are essential. 

If your business is product-based, consider reverting to your minimum viable product (MVP) until the withdrawn investment can be replenished.

2. Inform your staff

Notify your staff about the situation so they can refrain from making non-essential expenditures. They might also provide new ideas for attracting fresh investment or managing the current situation. 

Keep them updated and involve them in planning responses to various scenarios, including securing only a portion of the original investment or the worst-case scenario of closing the business.

3. Reach out to your other investors and pursue new investment opportunities

Inform your other investors about the situation and ensure they remain committed to your plans. If they are, inquire whether they’d consider filling the gap in exchange for additional equity or preferential terms.

Moreover, your current investors might be aware of potential investors seeking opportunities in companies. If not, consider restarting your search for investment from scratch. This approach may be the most effective way to address the issue in the long term.

For further professional advice on handling investor withdrawals, feel free to contact our partner-led team at Vanguard Insolvency. 

We provide complimentary, same-day consultations to help determine your best course of action. With a widespread network of local offices across the country, we’re well-positioned to assist you.