ners can become distrustful and employ greater oversight of the business,
turning the most attractive equity
partners into the worst in-house enemies. It is a given that a portion of any
financing will be wasted because not
everything works out according to
plan, but you can also be prudent by
including a cushion for losses within
the plan itself.
The third dangerous miscalculation involves valuation. The fact is that
the market will determine the valuation of the business and what an equity financing will cost. Unfortunately,
often the valuation is not determined
until the end of a process, when investors have full information on the
business and are able to make that
judgment in negotiation with the entrepreneur. If your expectations are
not aligned with market realities you
can waste a great deal of time and hurt
your relationship with many investors.
Preserve Your Options (but Not to
a Fault). Entrepreneurs “fall in love”
with investors much more often than
investors fall in love with companies.
There are countless instances of financings falling through at the last
minute, often because companies prematurely narrow the field to only one
investor. This leaves the company exposed to real or fabricated problems
that may result in a less favorable outcome (often a higher cost of capital).
Business leaders like to think the financing is substantially done even before the check clears. Optimistic
thinking can be a great ethos in driving an overall organization toward
growth, but, there is no place for giddiness in a financing negotiation.
Also, it’s important to weigh the
benefits of seizing the money that is
available today versus continuing to
hold off for a potentially better deal.
Raising money is stressful and takes
up much of your management’s time
that could be better used growing the
business. Entrepreneurs often undervalue the benefit of a quickly consum-
mated fundraising that enables management to get back to work.
Often is it best to follow the adage, “raise money when it is available,
not just when you need it.”
Be Patient. Most of the highly successful companies in the organic
products industry built that success over many years of hard work.
While product life cycles in this market have shortened, many business leaders are impatient to a fault in their drive to be the first to
market on a national basis. Being the “first mover” has clear advantages, but the breakneck speed at which many seek to grow stresses or-
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