Risky business (part 2): Reputation risk

In a recent post, I discussed the financial risks of starting your own company. Today, let’s look at how starting a company can put your reputation at risk.

If you lose money for an investor, you’ll probably impact your ability to raise money from them in the future. That can make life difficult in its own right, but it can also generate additional problems. Losing your ability to raise money from friends and family, or having a spouse put the kibosh on future personal investments can make it awfully tough to start another venture. It can also raise a red flag for prospective angels or venture capital investors, who are likely to want to see that you’ve tapped your own resources before reaching out for theirs. While it’s true that entrepreneurs can learn a lot from failures, let’s face it, investors would rather bet on people with winning track records. To make matters worse, some investor communities like angel networks and venture capital firms are very small and tight knit, so if you lose money for one, you may find other doors closed. While there’s no way to avoid reputation risk in the case of failure, being open, honest and direct with investors can only help. If investors perceive that you were a straight-shooter and that you executed well, you may live to win them over another day.

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