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5 things you MUST avoid when you're seeking capital from an investor or bank
When it comes to a successful business, it's not just a great idea or product that pushes you into the stratosphere when it comes to making money. Usually you will need to have an investor come in and help you out monetarily which will help you push your business even more. I'm not going to lie, getting investor capital is never an easy thing and you'll likely have to bootstrap your profits in order to build you own capital in order to be successful, but it's not impossible
Don't get me wrong, bootstrapping a business is a great way to build your business because you're doing it all yourself and you don't have to sign over part of your company for a certain amount of time, or forever depending on the contract. With an investor coming in early, you won't have to worry too much about cash flow at the start and you can just work on what you already know and love to make it the best it can be
1. Know how much money you need
So many business owners will think they need hundreds of thousands of dollars in order to be successful when it comes to owning their own business. You'd be amazed at how much just $10,000 can boost a company to the top and become the authority within the niche and help it make an extra $1,000 a day lol There have been plenty of success stories that started with a $1,000 to $10,000 investment and the company now makes millions.
Most startups will fail at obtaining capital from an investor because they simply think they need too much. The investor will give you what they think you will need in order to be successful, and not a penny more, because they've likely worked within your niche and know what it takes.
Don't seek too much capital because you could be turning away investors that want to work with you.
2. Don't give up too much equity in the early stages
Almost all the investors you will talk to when seeking capital will want a decent amount of your equity in return for some startup money. This is because they want to be successful along side of you and they think your business has a fighting chance to be big.
If you're getting a $10,000 investment and giving away 49% of your equity, you don't have any wiggle room if you want to bring in another investor. If you do bring in another investor, they will see that the first one got 49% for $10,000 and they're only getting 1% for the same amount lol. Now you could give them more than 1% but you will be giving away the controlling shares to the first investor, which basically means you don't run the company anymore.
Start low and offer something like 5% because that's what a lot of investors are use to. They will see your potential and know that the 5% and $10,000 investment could be a really good idea because you could be making millions later on. Of course you can bring in other investors, or work with the original one later on, if you want more capital... But it will cost them much more money to get another 5%
3. Don't have any credit card debt
Most startups will use their own credit cards in order to get their businesses off the ground. I would try to avoid doing this, and if you do you should pay it all off before you try working with an investor.
No investor will want to see that you have credit card debt and also trying to seek capital. They will see this as you using their money to payoff your debt and after that you have less money to push into the business. Now if you use your own profits to pay off your debt in a short amount of time and show the investor what you did, because you're responsible, they will be more likely to open their check books
4. Avoid companies requiring you to pre-pay them for an investment
So many times I've heard of this problem, and it's still going on today somehow. Usually when you hear someone say "Yeah, I can pay $2,000 and get $50,000 in credit for my business!" it's usually a scam. Any credible business or investor won't ask you to pay up front for them to send you an exponential amount of money.
Do you know who does as for a pre-payment? Scammers!
Avoid these systems like the plague because you will only be digging a hole for yourself that will be more difficult to get out of. It also won't sound good when you tell a real investor "I paid a company $2,000 for a loan but they ended up scamming me, and that's why I contacted you". The investor will only hear "I'm dumb and throw my money at anyone that says I can make more money" lol
5. Not having everything written down in terms of cash flow
If someone came up to you on the street and said "Hey man, I'm making $5,000 a month from my system but I'm limited by my capital. Can you sign a check for $100,000 and make it out to me for 10% of my business?" you would tell them to go to hell because they wouldn't have anything in writing. Even if they did, it would likely be falsified and you wouldn't know because you didn't verify anything.
You will need to have everything tracked so that you can give any investing firm accurate details on what you're doing with the money coming in and out. They won't invest in you unless they're sure you're doing everything right and there's potential
I do love bootstrapping, but if you want to start off in 5th gear then you can try to get an investor to come in and help out. You will need to do everything right from the beginning and run your business without any snags. You can't have any debt or fall for any scams because the investment firm will see that as you don't know what you're doing.
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