10 Critical Points When Seeking Capital

By Kirk Taylor
http://sbenco.com/

Here are 10 critical points when seeking capital. The ideas are based off my experiences. They will ring true for you too, don't doubt them, don't dismiss them and you will find yourself in a considerably stronger negotiating position for whatever comes your way.

1. Investors rarely do what they say they will do. They get cold feet, they try to renegotiate, and they will risk destroying their previous investment for the opportunity to grab even a stronger position.
2. When an investor tells you that you are going to be good friends and they want to hang out, RUN. This is not a good situation. Great investors don't hang out with you, they are focused on making sure the investment performs. It is business and they don't want to mix business with pleasure. Too many strings attached with this type of person. Investors should be business partners, never friends.
3. When a Venture Capitalist or Institutional fund says they will commit to investing, the money always comes 3-6 months after they promised the money. There is always an excuse, a reason for delaying. You only secured the money when the check has been written and the money is in the bank.
4. Never spend investment money that has not been received. Too many times the investor is late or never comes through. You don't want to be stuck figuring out a backup strategy to keep your business from failing. Nothing is for sure, until it happened.
5. Never take an investor in your business if you are debt free, cash flow positive. Grow slower and deliberately. It is not worth giving up your ability to run your company as you wish. When you take on the new investor, you now have to run the company with the best interest of the shareholders, not yourself.
6. Always take an equity investor over debt. Equity does not require it to be paid back, debt does and it causes you to take longer to get to cash-flow Positive. Always be focused on making profit and having positive cash flow as fast as possible.
7. If you think taking money from a particular investor is a bad idea, even if it is just for a split second, don't! That investor will become your worst nightmare when you need them most. You do not need a spoiler on your team.
8. Owning 51% of the business only gives you control when your business has sufficient capital to operate or you are able to raise capital from alternate sources to ensure your business has sufficient capital. Your other investors and potentially creditors can force you to sell them equity in the business as whatever price they want. It does not matter how much of the business you own, the business and the board must act on behalf of the shareholders best interest. (hence, the hostile takeover)
9. When your investor says yes to purchasing stock, don't count on them coming through, but use the momentum to seek other investors until you have secured the investment amount you have been seeking.
10. Currently it is my belief that entrepreneurs should avoid starting businesses that require substantial investment capital from outside sources and/or businesses that will require future investment. The market is to volatile, the laws are unsettling, and businesses that are not self-sustaining are riskier than ever in current market conditions. You are better off reformulating your business plan to a business that require no or minimal capital to launch. You will be happy you did.

So now you have 10 Critical Points When Seeking Investors. Take this to heart and don't be the person that realizes that this was good advice after you got your butt kicked by an investor. Slow is always better, prove your concept, and your business will be much more likely to survive in any economy.