by Josh Chernikoff
As an education entrepreneur, you’ve probably heard the term “investment” tossed around like it’s the golden ticket to scaling your business. It’s true—securing investment can open doors to more capital, faster growth, and access to powerful networks. But what’s not often talked about are the risks and challenges that come with taking on investors too soon.
In this post, we’ll dive into the pros and cons of getting investment for your education business. We’ll also explore whether it’s truly the best route for your company right now. Let’s break it down so you can make an informed decision about whether taking on investors is the right move for you.
What Is Investment in the Education Space?
Investment can take several forms, from angel investors and venture capitalists to crowdfunding and more. In simple terms, investors provide capital in exchange for equity or a percentage of your company. In theory, this money helps fuel growth—whether it's for marketing, hiring, or scaling projects.
For education businesses, investors are often attracted by the potential to scale quickly and disrupt the education sector. The promises are enticing: more capital means you can do more, grow faster, and access networks that can propel your business forward. Sounds great, right?
But here’s the catch—investment isn't always the fairy tale it seems, especially if you're not ready for it.
The Pros of Taking on Investment
Let’s be clear—there are definitely some positives to taking on investment, especially for businesses that are ready for rapid growth. When you’re just starting out, it’s easy to get excited about the possibilities. So, what are some of the advantages of seeking investment for your education business?
1. Capital to Scale Your Business
The most obvious benefit of investment is the capital infusion. It’s a game-changer for businesses that need funds to fuel their next phase of growth. Whether it’s expanding your team, running marketing campaigns, or launching new products, having the financial backing allows you to take bigger risks and move faster. For many entrepreneurs, this means the difference between taking their business to the next level or staying stagnant.
When you’re bootstrapping, resources are often limited, and everything seems like a balancing act. Having investors means you don’t need to dip into your personal savings or work at a pace that feels like you’re crawling. With investment, you can speed up that growth and tackle bigger opportunities—faster.
2. Access to Networks
One of the hidden gems of having investors is the access they provide to their networks. Investors often bring valuable connections—whether it’s potential clients, partners, or other investors who can help accelerate your business.
In my earlier businesses, I didn’t fully leverage my investors’ networks, and that was a mistake. They can open doors you didn’t even know existed, so take advantage of those connections when the opportunity arises.
The Hidden Challenges of Taking on Investment Too Early
While there are some obvious perks to securing investment, there are also significant challenges that many entrepreneurs overlook when they’re first starting out. The reality is, taking on investment too early could set your business back—rather than help it grow.
1. Giving Up Equity at a Low Valuation
When you take on investment, you’re giving up a percentage of your company. If your business isn’t yet fully developed, you might find yourself giving away more equity than you should, at a low valuation.
This means that as your business grows and its value increases, you’re left with a smaller piece of the pie. Early-stage investors want to get in at a low price, and it’s easy to get caught up in the excitement of having cash in hand—only to realize that you've lost too much ownership too early.
2. The Pressure to Prioritize Profits Over Building a Strong Foundation
Most investors, no matter how mission-driven the education space might be, are focused on one thing—profits. That means there’s often pressure to focus on scaling quickly and making money rather than building a strong foundation for long-term success.
And that’s where things can get tricky for education entrepreneurs. We’re here because we care about the impact we make on students and teachers, not just the bottom line. But investors might push for short-term profits, and this pressure can force you to make decisions that don’t align with your values or long-term vision.
3. Losing Flexibility to Pivot
As entrepreneurs, one of the things we love is the flexibility to pivot and adapt our business models. But when you bring on investors, you often lose some of that flexibility. Investors are looking for returns, and that means they want stability and predictability. They don’t want to see you making changes that could rock the boat.
For education companies, this is particularly challenging. The market is always changing, and the needs of schools, teachers, and students evolve over time. Being able to adjust quickly to these shifts is crucial. But when you have investors breathing down your neck, you might find that you’re restricted in how you move.
4. Poorly Structured Deals Can Harm Growth
One of the biggest mistakes I made in my earlier businesses was not fully understanding the terms of the investment deal. Poorly structured deals can be detrimental to your business’s growth, potentially putting you in a worse position than you were in before you took on the capital.
The deal structure matters. You might get a chunk of cash up front, but if the terms aren’t right, it could hurt your business down the road. From misaligned incentives to too much control in the hands of investors, these pitfalls can derail your business if you’re not careful.
Bootstrapping as an Alternative
If you’re not sure whether you’re ready for investment, it might be worth considering bootstrapping—especially if you’re early in your business journey. Bootstrapping means growing your business with your own capital, and while it may seem slow, it comes with several advantages that can help set a strong foundation for your business.
Benefits of Bootstrapping:
Control and Flexibility: When you’re bootstrapping, you maintain full control of your business. You get to decide what direction to take without answering to investors.
Focus on Sustainability: Bootstrapping forces you to build your business in a sustainable way, focusing on creating solid systems before scaling. This is essential for long-term growth.
Stronger Customer Relationships: Without investors pressuring you to grow too fast, you can take the time to build deeper relationships with your clients and customers.
If you don’t have to rush to secure funding, bootstrapping can give you the space to build a more resilient business model.
Key Questions to Ask Before Taking on Investment
Before jumping into investment, ask yourself these questions:
Is your sales process solid? You need a proven system for generating leads and closing deals before you scale.
Are you prepared to give up equity or control? Understand the long-term implications of giving away ownership of your company.
Do you have a strong, sustainable revenue model? If your business model isn’t working yet, throwing money at it won’t fix the problem.
Is your team ready for the growth that investment will bring? If you can’t manage the influx of capital and scaling, it could create more problems than it solves.
These questions can help you gauge whether your business is truly ready for the kind of growth that investment brings.
Key Takeaways: Bootstrapping vs. Investment in the Education Space
What is Bootstrapping? Bootstrapping means funding your business with your own money or profits, keeping full control without external investors.
Full Control Over Your Business - With bootstrapping, you make all the decisions, preserving your vision without outside influence.
Sustainable Growth Over Quick Wins - Bootstrapping encourages focusing on long-term, sustainable growth rather than rushing to scale with outside capital.
Why Investment Can Be Risky Too Soon - Early investment comes with risks—giving up equity, losing flexibility, and added pressure to prioritize profits.
The Hidden Costs of Investment - External funding can force you to focus on profits too quickly, possibly harming the foundation of your business.
When Bootstrapping Works Best - Bootstrapping is ideal when you're in the early stages, testing your business model and building a solid foundation.
Watch Out for Cash Flow Challenges - While bootstrapping gives you control, it can strain your finances—be mindful of managing cash flow.
Know When to Seek Investment - After establishing a solid business, predictable cash flow, and product-market fit, consider investment to fuel growth.
Build Before You Scale - Focus on building a strong business first. When the time is right, investment can accelerate growth, but only after you’ve laid the groundwork.
Conclusion
Investment can undoubtedly help your education business grow, but it’s not the right move for everyone—especially early on. While securing capital can speed up growth, it comes with risks that can set your business back if you’re not prepared.
Before you dive into seeking investors, take a step back and ask yourself if your business is ready for the pressure, control, and potential setbacks that come with it. If you’re not sure, bootstrapping might be the better option for now.
To dive deeper into this topic, listen to this week’s episode of Breaking the Grade, where I break down the pros and cons of investment for education entrepreneurs.