May 5, 201402:34 PMOpen for Business
with Jody Glynn Patrick
When to tell that wonderful investor, ‘Thanks, but no thanks’
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- When you can attract two sharks instead of one. In the excitement of pitching a deal on national television within a three-minute time span, too many entrepreneurs hope for a single response rather than suggesting that two investors come in on the deal. A co-sponsored deal suggestion usually comes from one of the sharks rather than from a participant. Why? Think of your own business; rather than bringing in one investor at 30% equity for $200,000, wouldn’t it be better and easier to bring in two investors at 15% equity each, for $100,000 each? You’ve watered down their individual control of your company, made the entry point more palatable, reduced their individual risk, and better served your company (and all investors) by tapping into their expertise and connections.
- When the investor gives you a “now or never” decision deadline. When they suspect another shark’s interest in a deal, television sharks Robert Herjavec and Mark Cuban are quick to make an offer followed by the caveat “you must accept my offer in the next 20 seconds or I’m out,” meaning do it now or that shark is heading off into the sunset in search of better morsels. Too often, the investment terms would likely have been better if allowed to simmer in the tank a little longer. Ultimatums from either party serve no higher purpose and, in fact, arouse suspicion that the deal shouldn’t be scrutinized too closely. Take the time to think every deal through and negotiate the best outcome for both sides.
Very seldom does a business self-fund its enterprise 100%, for 100% of the time. It’s common to need the occasional line of credit, a business expansion loan, or (third choice) an investor. While terms are standard for the first two options, involving another individual’s cash in your business is always risky business for both of you.
Knowing the true value of your business, and bringing an optimistic but reasonable vision of expected future success, is important, but knowing when a deal is a deal and not a predatory offer made by a bull shark in a business suit is critical.
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