The 5 Biggest Mistakes in Raising Startup/Early Stage Capital
he business landscape
is littered with would-be entrepreneurs who've
stumbled in their search for startup/early stage capital.
Those who pass the test
frequently have unacceptable strings attached to the
deals that close come back to bite the CEO or
owner in the form of onerous debt, inequities, loss of
control or worse.
Many financing efforts fail because of avoidable
mistakes that are made in pitching potential investors
structuring the agreement or managing the money
once the deal is done. Steering clear of these
missteps can increase your chances of success, both
in obtaining startup/early stage funds and keeping the
flowing. Be sure to avoid these mistakes:
the management team, your funding efforts will likely
result in failure. It's not enough to convince potential
backers that you've invented the next must-have
product or service. You also need a team that can
revenues to repay a bank loan, reach milestones, or
provide an exit
strategy for a VC or angel investor. The greatest sports
team in the world still needs great coaches and a
support team. The same principal applies in
business. Showing that you have top-notch
management and even outside experts, like a
business coach who can supply professional
guidance is essential to finding a funding source.
Inadequate Business Plan. There is
worse than going into a money meeting unprepared.
you haven't put the time and energy into writing a
comprehensive business plan complete with
information, such as a business description,
financial projections and a competitive market
analysis, the people with the cash won't put the time
into evaluating your proposal.
Not Asking For Enough Money. In a recent
Bank study of reasons for small business failure, 79%
cited starting out with too little money as one of the
causes of their collapse. That's often because
entrepreneurs typically don't
realize that they should forecast their cash
needs based on their worst-case scenario instead of
the best-case scenario.
Failing To Get The Proper Legal Agreements.
is arguably more important than a prenuptial
agreement for a couple with significant individual
assets. Every lender or investor eventually will need
his/her money back, and a legal document covering
everything from the terms to the timing can avoid the
kind of acrimony just described.
Poor Cash Flow Management. Too many
owners of new
businesses burn through their seed money too
quickly and fail to reach cash flow-positive status in a
timely manner. Some factors, such as late
product deliveries and economic downturns may be
beyond one's control. Financial forecasting and
budgetary controls are critical.
There are other pitfalls to avoid, so seek experienced,
professional help to take your business to the next
CEO Advisor, Inc. specializes in Strategic
Business Planning and Funding.
a no cost,
no obligation discussion on how to achieve your
Our mission is to provide
CEOs and business owners of small to mid-size
needed focus and expertise, coupled with hands-on
advice to grow
your business. To take your business to the next
level, contact Mark Hartsell, MBA, President at
MHartsell@CEOAdvisor.com or visit us at
www.CEOAdvisor.com for more information.
|7 Key Points for Successfully Selling Your Business
Selling your business is a major
especially after many years of long hours and hard
work. Receiving the proper coaching on the sale
maximizing the sale price and getting the deal done
are critical, and are comprised of hundreds of small
steps. Here are some important tips:
Manage Expectations and Be Prepared For
other party's position. This is key in your negotiations
with the buyer and successfully getting through the
process. Consider their alternatives. What are your
alternatives? When qualifying a buyer, do your
consider the merits of bringing
in additional potential buyers. In all cases, prepare for
due diligence process by starting six or more
prior to selling in order to
make a deal work in your favor. Most importantly, have
your financials, accounting and customer contracts in
Structure the Sale to Protect Your Business.
Confidentiality agreements are important, but there
are other practical strategies you can use in parallel.
Carefully qualify who you engage with - only deal with
acquirers you determine are serious. You should only
release information about your business that would
be appropriate as part of the sale process. You can
provide additional information, as needed. It helps
both sides if information provided is organized, easy
understand, simple to interpret and supports the
objectives of the sale process.
Get to the Offer Stage Quickly. Whether
selling a business, a well drafted offer letter is
critical and provides a platform from which to
proceed. It's in no one's interest to put a huge amount
of effort and resources into a business sale before
both parties can see an offer that represents a good
probability of closing.
Business Valuation. Understand the fine
print. Make sure both sides understand the details
protections of any initial offer. Both buyer and seller
need to understand exactly how the offer is made up
(cash, assets, stock, deferred compensation, earn
Both sides also need to understand the details of any
protections around working capital, the treatment of
surplus cash and balance sheet items.
Hit Your Targets Along the Way. It is
helpful for all
sides if the business for sale has a record of hitting,
and continues to hit, its targets. Not managing to hit
targets at a key point in the sale process has to be the
most common reason for business sales floundering.
Your business isn't sold until the closing occurs and
you never want to create concern or cause your buyer
Determine Your Role in the Future.
role and compensation fairly early on in the process
before you are too deeply vested in time and
resources. Far too often acquiring companies will
push this off until it is too late for you to strike a
favorable deal for yourself. A key part of the process is
understanding the other side's hot buttons, and
structuring relationships so that both sides have
incentives to deliver after the business sale is
Keep the Sale Process on Track. The
selling a business can absorb more time and
resources than it should, resulting in high costs and
you being distracted from your business. Be very clear
early on how the selling
process should unfold and make sure you are
delivering on your side. The process of selling a
business can, itself, represent the initial steps in a
trust building exercise which helps as you enter legal
negotiations. Keep on timelines and don't abandon
them at any point. Instill deadlines, if needed, and lock
in a closing date as soon as the due diligence
process is complete.
In our next CEO Advisor Newsletter, we will
present some ideas on determining the selling price.
CEO Advisor, Inc. provides management
advisory services, including mergers, sales and
acquisitions, to CEOs of small and mid-size
companies. We address your specific needs with
hands-on action, not just analysis.
Contact us today for a free consultation.
"I am feeling more confident with everything now
that you are involved. Furthermore, often times I feel
like I am going at this all on my own. Getting you
involved, Mark, has recharged me in many ways!
appreciated on my side. I look forward to our future
|Words of Wisdom
"Think there is something more important than
believing? Action! The world is full of dreamers, there
aren't enough who will move ahead and begin to take
concrete steps to actualize their vision."
- Clement Stone
|CEO Advisor, Inc. - Member of Accredited Organizations
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- Technology Council
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- Institute for Independent Business