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I recently read a forum post where two young entrepreneurs (still in college) were seeking over $1 million for their new start-up, small business. While their business may be a great idea with huge potential – they essentially priced themselves out of the market with their $1 million funding request. Given the stage of the business and its newness (meaning no revenue, no customers and no proven track record) this business (these entrepreneurs essentially price themselves out of the funding market.
While this business may actually need the $1 million to get to profitability – I can almost guarantee that it does not need all of those funds right now – at startup. So, why seek them? Why risk your businesses entire success from asking for to much? Why tick off an investor who will see this as nothing but greed on the business owner’s part?
I know that it is easier on the business owners to go out and get one, all inclusive loan or investment – but from the other side (the lender’s or investor’s side) – it is just too much risk and will never get funded. Further, it will implant a very bad image in these investor’s minds. And, I can assume you that all investors talk to each other. Thus, if you alienate one of them, you will alienate all of them – it is a small community.
This business would be better off staging its request based on immediate need. Example, this business may only need $100,000 to get it through the end of the year or end of the quarter or end of the month. Whatever the time frame, this business should then only ask for the $100,000. Then, as the business approaches the year’s end or month end, etc, start to seek additional funding. Which should be an easier task even that the business now has a investor going to bat for them.
At this point, the business would have some type of track record – either sales and/or revenue or contracts in hand from solid customers – both of these (revenue or contracts) will open many more doors for this business – leading to more financing at better terms for the business. Or, the business could have at this point generated some financial assets like accounts receivables, purchase orders or even credit card receipts that it could use for collateral to secure additional funding – meaning better terms, better rates and much faster approvals.
I realize that it is much easier and lower risk from the business owner’s perspective to get all the money need right now – plus, seeking capital is very time consuming taking away needed time in the business. But, from the other side – those with the money – it is just too risky – asking for more than you need immediately is the surest and quickest way of hear that dredged ‘NO”.
If your small business needs financing, why set it up to fail as your goal is to move forward. Don’t set yourself up for the impossible by asking for too much – first prove that you can manage your debt or equity capital.
Tranche your requests and I can guarantee that you will quit hearing “no” and start getting the “yes” you deserve.
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