I worked with an entrepreneur who was charged with taking his company global in 10 weeks because a friend of his father had $1 million to invest in the business.That’s a very fast turnaround that can flip everything upside down if you’re not careful. And when you have a personal investor providing funding to take your business to the next level, you can’t hide what you’re doing or take it slow. Every card is on the table. It can be an incredible opportunity – or an incredible mess.
I’m glad he came to me to work out the transaction and value the interest being sold to his father’s friend. That’s where business lawyers are invaluable. I helped him work through the practical implications of how this burst of funding affected employees, contractors, current work, and other situations.
Entrepreneurs looking for funding don’t think about the totality of organically increasing their business overnight; all they see is more money in their pocket, all they think is more money in their pocket, all they think is I’m going to have more sales.
But before more sales can come, there can be a lot of headache and heartache to deal with.
One of the major issues a growing business faces is trying to obtain capital – cash to grow the business. I see it all the time, securities issues, promissory note issues, a whole host of ownership issues.
Since the economic downturn of 2007-2008, it hasn’t been easy for businesses to get their hands on enough capital to help them through growth periods. Why? Because banks aren’t lending in the traditional ways they used to. Lines of credit are harder to come by.
Today’s entrepreneurial growth financing comes in unconventional ways. Entrepreneurs aren’t going to banks, they’re going to private investors and angel investors, seeking out people who have money.
Who, you may ask?
There are people out there who have money they’re looking to invest in the next, great opportunity. I’m not talking about startups, I’m talking about businesses that have at least a few years under their belts and a proven track record that makes a better investment than something new and unusual.
Investors like that.
They like entrepreneurs who can show they’ve weathered some storms, made good management decisions and have a sound structure in place.
In Michigan, entrepreneurs who have shown they can handle all the hardships our state has seen in the past are good investments. They’re ready to grow in huge leaps and bounds and investors want a piece of that action.
I come in after these folks find funding, when they have new challenges to face.
Here’s a snapshot of some of the potential kinks in the armor that you might not expect to find with this type of innovative financing.
- Being able to package products and services or business systems. Some aren’t ready. You’ve found the funding but now you have to jump in and make it happen. Often, entrepreneurs spend so much energy looking for the dollars that it takes a while to shift gears before they can start using it. And investors want to see results, fast.
- You find an investor – how do you decide what to sell them in terms of equity?
- Once the investor comes in, how does that affect business-as-usual? New funding and new eyes and ears watching the business causes reverberations throughout the rest of the organization.
Businesses with annual revenues in the realm of $3-4 million may look for $500,000 or $1 million to grow in significant ways. Proportionately, that’s a huge percentage – typically businesses of that size don’t have a big enough infrastructure to not feel a ripple when such significant funding comes in.
Funding is needed for business growth, no question. I help entrepreneurs and business owners navigate the learning curves and steps that they can’t anticipate so the funding becomes a boom rather than a bust.
One of my current clients has several organizations and is on his way to becoming a $10 million company in the next few years. Investors are knocking down his door, throwing money at him. I’m keeping him at a snail’s pace so that he can grow the business smart, rather than fast, and not lose all the value and cash that people want to invest in.
If businesses are ripe for investing, it means they’ve done a good job. With the proper guidance, they can continue to do so.