You can’t get your new business funded? Damn, that’s disappointing. But does it prove that the world is unfair? All those other people get funded and you don’t? Or that the world is stupid?
I don’t think so. I think what it proves is that you don’t have the deal right. Investors don’t want it. Advisers don’t think you’re ready. Fix it or forget it.
Investors don’t buy into your business out of fairness, respect for your idea, or because they know you and like you; they invest in your business because they believe the money they spend buying a piece of it today has a fair chance of becoming a lot more money later. Investment is about business, plain and simple. And it’s their money. They have every right to say no. They are not a public service.
Yesterday I posted A Seasoned Angel Investor Highlights These 4 Factors here. Factor number one is previous startup experience. And yes, there is a catch 22 problem:no experience means no funding, but without funding, how do you get the experience?
It’s a trick question. If you don’t have any previous startup experience, don’t blame the world, get some. Work with a startup. Get partners who have experience. Maybe scale down the plan. Bootstrap it.
If your plan can’t get funded, don’t blame everybody else. Change the plan.
I can appreciate what Kevin is saying in regards to having a solid business plan, with “3300 waiting retail customers”, yet he doesn’t want to surrender 51% controlling interest. Sometimes that’s called “Greed” and at other times it’s called “Fear”. Greed means you’re willing to allow “others” to put up “their money”, provided you can retain full control (meaning you have to have 51% or nothing).
Fear suggests “if I give up control/ownership, this plan is going to fail for sure!” I mean really, think about that. An investor is going to put up the money only to sabotage his investment? Or does it mean you’ll have to be accountable to someone for how the funds are dispersed and that goes against your grains? Granted 51% means the investors will have control; however, it also means you’ll be able to get your business started, or expanded, and I’m sure you’re ProForma doesn’t show you’re working for free! As long as it turns a profit, and you get your business launched, isn’t that the overall objective? After 2-3 years you sell it to a competitor you’ve just squashed, and by then, you’ll have thought up another gang-buster of an idea and guess what? You’ll fund it yourself! Don’t sell yourself short – have a little Faith man!
I met Friday (3/3/11) with a successful Entre (Entrepreneur) who was onto his 4th or 5th startup, and he told me about some of his early mistakes. His biggest one, was when he turned down a 51% deal with an early investor, only to realize 12 mo.s later, he should’ve taken the deal! Only God knows the future (Ecclesiastes 7:13 + 14) so why sweat it? Roll with it man!
Things didn’t turn out as projected, which left him in a worse predicament than before. Not a good place for anyone with a conscience and good intentions to find themselves.
What I’ve seen done in the past is to offer a “51% Working Agreement” that gives the investor the controlling interest, when it comes to how the money is being spent initially, and this arrangement allows the Entre to retain the majority of ownership. Once a financial mile-marker has been reached, in regards to sales, etc….. and an agreed upon percentage of the investment capital has been repaid, the Operating Agreement is dissolved (because by then the business has “proven itself to be roadworthy”). At that point the ownership reverts back to the pre-agreed split of 70/30 or whatever was negotiated up front.
It’s always a delicate balance of having a viable product or service that will make money for the Entre AND the investor because if the business won’t do both, everyone loses! Don’t blow the deal for lack of options in bringing it together. As Tim has mentioned before, just make sure this investor is someone you really want to be married to for the life of your agreement! LOL!
Funny how our parent’s advice continues to haunt us in areas OTHER than selecting the right spouse! Ha!
I’m a very experienced businessman and have been for over 33 years. I’ve got a business plan, executive summary and a business that supplys over 3300 retail customers. BUT, I can’t supply them because I can’t find an investor who won’t accept less than taking over 51% ownership of my company before they invest. I’m willing to share the INSTANT rewards but not give away ownership of my own company. IS THERE SOMEONE WHO CAN HELP ME FIND THE RIGHT PARNTERSHIP DEAL?
IMPORTANT: I moderate comments here and I wondered about the legal implications of Kevin’s comment, given that securities laws prohibit pitching for investors inappropriately. I think it’s safe though, because he’s specifically saying he does not want to give away ownership, which means that he doesn’t want investors.
And it’s a good reminder: it is against the law for an entrepreneur to solicit investment in his or her company accept in very carefully defined situations. That’s law that was enacted during the great depression to prevent fraud.
I really like this person’s take on the whole venture capital thing more so than this article (http://www.inc.com/articles/201102/what-does-it-take-to-become-an-entrepreneur.html). I like the way she states what venture capitalists are looking for…a little bit of craziness! If you come in with the attitude of just a business guy that has an perfect plan, perfectly projected, etc… I don’t think i’d even back something like that. #1, nothing is every perfectly executed. Crazy people tend to be extremely adaptive. That is why many of these types don’t necessarily have a finished business plan, nor a finished financial projection, etc. and they get chosen over the perfect clean cut person. Maybe it is attitude that the venture capitalist is picking up on as opposed to the whole your idea just sucks theme. It all does tie into money in the end….but are you showing the traits that show you will fight tooth and nail for the mighty dollar for that all impressive ROI? Good article to start a discussion. 🙂 I always end up getting linked to one of your articles and never regret it!
[…] … a false hope? Ask one of those people who spends forever writing business plans that never happen. Maybe this relates to my post here last week, if you can’t get funding, it’s you, not them. […]
Tim, I sure like your writing style and reading your insights into what should be the obvious. I’m working with a client now who is blaming investors for not seeing what he claims is obvious…that his idea really is different. REALLY. Of course the feedback is they’ve seen dozens of similar propositions recently. Cheers.
[…] This post was mentioned on Twitter by Noah Parsons, Abel Creative. Abel Creative said: If You Can’t Get Funding, It’s You, Not Them: TweetYou can’t get your new business funded? Damn, that’s disappoi… https://bit.ly/e5dbto […]