In this video Loral Langemeier and I discuss some things to look out for when trying to raise investment capital. We plan on doing a series of rip off reports, with the idea of helping prevent YOU from getting scammed.
If you have ever seen the movie Wall Street you probably remember the character Gordon Gecko who said “greed for the lack of better word is good” but is it though? Well we all know where greed landed Mr. gecko.
When it comes to raising money from investors we must ask ourselves what our company is really worth. Now of course, every entrepreneur thinks his company is worth more than what the professional investor believes what it is worth. And of course if you ever watch the TV show Shark Tank you know exactly what I’m talking about, and by the way if you don’t watch this show start today!!! It will be a great education for the young entrepreneur who has never pitched a real check writer.
First you must understand the term called “pre-money valuation”. This is the valuation that we would put on your company, as an investor prior to investing i.e. the word pre. Now also keep in mind when investing in an early stage, high risk opportunity, we need significant upside potential to risk 100% of our investment capital. So when you take that into consideration it helps you understand why investors always want to value your company lower than what you want value your company at.
The best advice we can give you, is to really do your homework and really understand valuation and how to come up with a reasonable fair valuation they can be justified even Mr. Wonderful on Shark Tank. Now that you have a better idea from the investors point of view let’s talk about your greed.
The one thing that can save you from this greedy entrepreneurs syndrome again is knowledge. When you understand how to structure deals in the inside and of corporate finance if you have a really good plan with a really good management team with a lot of upside you can always structure a deal that would make the investor happy at a good valuation as well as protect you and not giving up the farm and getting too much your company away.
You first got to ask yourself what’s the cost of not getting funded so I have the capital to implement my plan? All too often entrepreneurs hold their idea, their invention, so close to the vest and having an unrealistic valuation that they never get funded. Now this happens this causes a couple of problems. First you never get your product or service to the marketplace therefore not being able to help mankind in second you never have the opportunity to see if that vision that God gave you can set you up to take care of you and your family and your children for generations to come. Don’t let that be you!
I have often found that entrepreneurs always have more than one idea and I am continually coaching them to get the funding, get to market, make it successful and go do it again. I’m telling you that you’ll be happier, you will be more fulfilled and life will be more satisfying if you can get an investor to back you, you get to market and have a winner.
That’s why we recommend, when raising money for investors, get help from professionals so they can help you structure a deal, help you with your valuation, help you with your language and help you get to where you want to go faster and a much more efficient manner.