S&P 500 Won't Go Up Forever this Fast!
In 2013, the S&P 500 stock market index returned a robust 32% to investors. When wealthy individuals are feeling flush from the growing value of their traditional investments in real estate, mutual funds and other securities, they tend to be more open-minded to backing ambitious entrepreneurs…perhaps just like you.
But don’t wait. At any time, stock market sentiment can change causing wealthy individuals, angel investment club members, and venture capital funds to become more conservative in how much they invest and on what deal terms.
Usually, when entrepreneurs procrastinate about taking steps to fund their startup or existing businesses, they are worried that they will “lose control” of their business. They want to build their business to their creative vision without compromise. They want to be the boss…always.
My responses to questions about “control” always return to the business itself. Will the business owner be able to build the business without funding? And how much fun is it to be in control of a business that has no money to pay its bills? To me that that’s a business that is out of control!
If you need cash, here are five more reasons to approach investors without delay:
1. Spread the risk. How much money can you afford to invest in your business idea? Self-funded entrepreneurs tend to borrow aggressively on credit cards, take out personal loans and personally guarantee payment of leases and office space. Older, second career entrepreneurs are even more vulnerable to financial disaster because they tend to have more assets to deplete including retirement savings and home equity. If the venture doesn’t work out, then they no longer have a job or savings. What they do have is a lot of debt. When you raise money from investors, you are not personally on the hook to pay back investors if the unthinkable happens.
2. Maintain a peaceful Thanksgiving. When entrepreneurs tap best friends and family members to startup or extend life support to a struggling business, they can expect intense questioning at every family gathering. Is potential family anxiety and criticism really worth it when funds may be available from other sources?
3. Get smart help. It’s lonely at the top of any business. So who can entrepreneurs talk to when strategic problems arise? Investors operate in large eco-systems of professionals, board members, executives, other investors and other winning entrepreneurs. What they know can help you succeed with the least amount of beginner’s mistakes and regrets.
4. Get a bigger payoff. When it’s time to sell the company or go public, how can entrepreneurs negotiate with confidence? Here investors can bring experience to the table. Venture capital funds and angels help orchestrate lucrative sales all the time. Of course, getting top dollar for a business benefits the founders too.
5. Add-on-financing. If an organization is growing quickly and needs to reinforce its capital base, a business founder’s first call should be to existing investors. These investors generally “pony up” again to maintain their percentage ownership in a business, saving entrepreneurs some time. They also may refer entrepreneurs to new investors as well.
The time to think about pursuing investors is long before your company’s bank account is near empty. For every business that loses its bank credit lines or doesn’t yet qualify for them, independent investors may provide the most practical opportunity to obtain capital for business growth.