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Common Mistakes Entrepreneurs Make in the Search for Capital

Preparing inadequately. Today’s capital markets require
you to get inside the head of the typical investor and
deliver a business plan and a business model that meet
his or her key concerns. You will be expected to
demonstrate that you can ramp up quickly with a team
that really understands the target industry. You want
to show that your company can generate a sustainable
and durable revenue stream that will become profitable
in a reasonable period of time.

By Andrew Sherman NFIB.com

Letting the search be guided by a shotgun instead of a
rifle (the search must be focused on the most likely
sources).

Misjudging the time it will take to close a deal.

Falling in love with your business plan (creating
stubbornness, inflexibility and defensiveness–a deal
killer).

Spending too much time raising the money and not enough
time managing the business along the way.

Failing to understand (and meet) the investor’s real
needs and objectives.

Taking your projections too seriously.

Confusing product development with the need for real
sales and real customers.

Failing to recognize that the strength of the
management team is what really matters to investors.

Providing business plans that are four inches thick
(size does matter and shorter is better). Be prepared
to have multiple presentations in different
lengths–the one pager, the two-pager and the full
plan).

Not understanding that most investors are very, very
busy and hate to have their time wasted. Keep it simple
and get to the point in your presentations.

Providing business plans that are more exhibits than
analysis.

Forgetting that timing is everything. Don’t raise money
at the last minute. It will already be too late, and
the cost of desperation is very high. The best time to
raise money is when you can afford to be patient.

Being so afraid of sharing your idea that you don’t
tell anyone about it. You can’t sell if you don’t tell.

Being price wise and investor foolish. It’s not just
about getting the best financial deal, it’s also about
learning what other strategic benefits the investor
brings to the table.

Not recognizing that valuation of small companies is an
art, not a science. Be ready to negotiate as best you
can depending on your negotiating leverage.

Believing that ownership equals control. An investor
can have 10% of the ownership and 90% of the control
(and vice versa) depending on how the deal is
negotiated and structured.

**************************************************

Andrew Sherman is internationally recognized as an
authority on the legal and strategic aspects of
entrepreneurship and business growth. As a senior
partner with McDermott, Will & Emery, he manages a
multi-million dollar corporate and transactional
practice, representing Fortune 1000 corporations as
well as hundreds of technology-driven, netcentric and
rapidly growing businesses. You can read a sample
chapter of his book, "Raising Capital," at

http://www.kiplinger.com/nfib/books/raisecap/Excerpt01.htm.

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