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July 15, 2004
BBBT: Raising money
Question: Why do think it is so important to know how much money you will make before you try to figure out how much money you will need to raise?
Answer: The real issue is fit, in this case financial fit. Different types of companies have very different types of needs, in terms of people, resources, and capital, and you simply need to be clear about what your particular needs will be ahead of time, or run the risk of wasting time chasing the wrong capital, getting too much capital (a problem), too little capital (another problem,) capital that comes with onerous requirements, capital that comes with destructive investor/partners, capital that drives individuals to do foolish and counterproductive things, and so on.
Modest businesses have modest capital requirements. Capital intensive businesses call for, well, intensive capital. Those rare high-potential companies with great growth prospects might qualify for venture capital. But every choice has consequences—both advantages and disadvantages that the founders must reckon with prior to accepting the backing.
I hate to sound simplistic on this point. Maybe the real point is this: choosing a source and type of finance is essentially a strategic choice that has great bearing on the future of your company. And it’s not just that you need the right fuel in the tank, as it were (whether gas, diesel, or rocket fuel.) Choosing the right financial backing means vetting everything that comes with the funds: are you using this process to learn more about your company’s health? Are you seeking backing from people with industry experience or terrific contacts? Do you see this as a process in which securing the capital is a crucial part of a larger process that moves your company forward?
Posted July 15, 2004 03:56 PM
Comments
Speaking about right capital venture to choose, I learned form The Entrepreneurial Venture on page 266 that "most venture capitalists specialize in particular industries." Thus, it does not make much sense to present an Internet deal to a venture capitalist who specializes in medical device companies." In my opinion, an entrepreneur as a expert in his/her field should have known the best venture capital to whom he/she can go to introduce new project. For most capital venture the three most important factor an investment are "people,people,people". I read this on the next page the same book. The entrepreneur has been looking for the right capital venture, but on the other hand, the capital venture has been looking for right person to invest.
Posted by: Ewa Durakiewicz at July 15, 2004 05:13 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
