I used to think we didn't need investors. Then I changed my mind and decided we did. I changed it again, and again, until finally I was so confused about whether or not we needed help I gave up worrying about it. The fact is, sometimes investment capital can sink an otherwise healthy business so knowing when and whether to ask for money is part of the maze one navigates as a new business takes shape. I know this because I own a small, so-far successful start-up that might have derailed if I had gotten my wish for funds early on.
 

The problem with funding, at least in my case, is how investors looking for milestone growth rates (or a quick ROI) can influence a company's direction in the early days of operations. This can place undo strain on a business while it's just figuring out how to survive. In some cases, if investors don't give a business ample time and space to figure things out, they can force a business to take unnecessary risks resulting in lost capital before the business is ready for prime-time. Similarly, a business can be forced to make unqualified assumptions or spend money in the wrong places in an effort to show investors that they are making progress.
 

Before I had a much of a sense for this type of dilemma, I presented my company to various investors hoping the cash would allow us to move forward at a quicker pace than our self-funded approach. Not so ironically, however, they didn't want to spend money on us even though we had a healthy dose of paying customers and my SaaS operation was already earning money. Cumulatively, they cited many reasons:

* Your business is open to competition
* Your market size it too small
* You're not the first or the largest of your competitors
* We've had difficulty in your industry in the past
 

Of course I don't agree with those folks and wouldn't be in this business if I did. But the fact remains, there was no golden-egg of a check forthcoming and at least initially we were on our own.
 

So, what might have happened to us if an investor had picked us up? As an example, take our first legitimate bite from the investment world. A small funding operation dug into our numbers and eventually offered us a deal but made the mistake of thinking our customer acquisition cost was linear. It was not and I was forced to pass on the opportunity. I couldn't take several hundred thousand dollars with the expectation of linear growth that I knew wouldn't materialize. The investors thought they could double our advertising budget and consequently double our business, but I knew that wasn't the case because advertising costs had historically grown as more funds were invested. The quick turn they were looking for would not have materialized and things would have gone sideways with unpredictable results for the company.
 

After more searching we eventually agreed to an investment from another small group who gave us a sweetheart deal. We would get a small investment infusion each month for 20 months. It was perfect! We liked this format because it gave us cash flow and time to learn and grow. Problems started soon after as these investors didn't take time to understand our business properly prior to investing, so when they made suggestions that didn't fit the existing business plan, we couldn't possibly follow through. Needless to say, the slow drip funding model we had negotiated quickly dried up and we were back on our own before reaching the $100k investment mark - even though the money had moved us forward. Had we hired people or committed to any long term service contracts, we would have suffered considerably when we lost our funding and might not have survived.
 

Even today and with all my experience looking for money, I'd still be willing to discuss an investor coming on board but I'd do it much more cautiously that before. We have managed to grow to nearly 500 paying and loyal customers with relatively little external investment, and we're still growing today. If the right deal comes along we'll consider it, but in the end I've concluded that it's better to drive in the slow lane and reach your destination than to crash while speeding.
 

I think of this as the difference between a rocket ship and a cruise ship. We are the latter - slow and deliberate, but with demonstrable momentum. I'll be the first to admit it's taken considerable time and effort to grow, but if someone would have handed me $2M on day one, this company might not be here today. They say it takes 15 years to become an overnight success. I suppose that's us, because we're past the break-even point and we're still essentially self funded.
 

Joel Slatis has been building web sites for more than a decade as an independent web developer and search engine optimization expert. His latest website, Timesheets.com, is a web based time tracking service was founded in 2004 and is operated via two web sites, TimeclockOnline.com and Timesheets.com. Today, Joel's company tracks employee time for over 500 companies in more than 10 countries.
 

Reference site :
http://ezinearticles.com/?Why-Start-Ups-Should-Beware-of-Investment-Capital&id=3948312