Organic Processing Vo1.5 #5

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-