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Beware the False Investor - Raising Capital for the Entrepreneurial or Growth BusinessRich S. Pirrotta
Many small or start-up businesses at some stage contemplate whether or not to seek externalfunds to accelerate their growth. While some organizations can work with more traditionalmeans, such as asset-
based financing from a lender using the company’s or owners’ assets as
many businesses either don’t have that choice or don’t like the terms and amount
available. As an aside, i
t’s common for a bank to ask for the owners’ personal guarantee (PG),
and from my perspective,
that’s a dealbreaker.
A good rule of thumb on the PG request is topolitely say no. Find another lender who
a PG, or choose another funding source.When an organization seeks external funding outside of the lending community, they are
entering the realm of the capital raise. Whether it’s friends, family, angels,
), alliance partners, or private equity (PE) firms, an effective capital raise to the investorcommunity involves communicating 1) a compelling business opportunity, 2) appropriatefinancial returns for the risk involved, and 3) a credible, experienced management team.The level of sophistication required for each of these audiences varies, but there is always arhythm involved. By your actions on this journey, you signal that you are either experiencedwith the process, or a novice to be taken advantage of
make no mistake, when it comes to acapital raise, rarely is altruism involved. Funding your organization is an intense, no-holdsbarred process, and the stakes are very high. You can breathe a sigh of relief when the fundshit the
bank account, but then you’ll have the new journey of working with investors
andinvestor relations. Once you take in external
funds, it’s a milestone for more than just the
dollars involved.The dark side to this process is that you will ultimately come across the False Investor
thosemasquerading as individuals or firms that may appear to be interested in providing funds, but inreality, are in the dance to learn more about your organization for their own purposes.In my experience as an entrepreneur, advisor, CXO,
and board member, I’ve helped
a numberof organizations raise over $35 million in capital from every conceivable source, and wanted toshare a few thoughts on the difference between an approach that can deliver results, andothers that will just leave one frustrated. This article addresses the key players in the process,how to identify someone as a False Investor,
and the information you’ll need to prepare as you
enter the dance.
By the way, there’s no dearth of advice on this subject, and I don’t profess to be a deep expert
among any of the potential audiences.
I haven’t worked for a PE
or VC firm
, and I’m not an
investment banker. But I believe my experience in working broadly across the potential fundingaudiences provides a unique and successful perspective.