Don’t get caught up in the buzz!
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Loading ...By Gail Geronimos on Dec 11, 2007 in Featured, Venture Capital
I love this job. So many interesting situations!
Yet again I saw a company that was going for capital but, after some basic analysis, they didn’t need the money.
Anyone who invests in your business will charge top dollar. What I mean by that is that they will take a big chunk of your shares and they want a return of 25% +. Now that’s expensive. If you can make more money from their money, then the sums add up. Otherwise forget it.
The company in question had great profit margin and sales were going gangbusters. They could generate enough cash for their own expansion. So, why bring in an investor?
The irony is that they are doing so well that investors were definitely interested. But, in reality, the price of equity investment was too high and they have other sources of capital at a cheaper price.
Treat capital like any resource. How much does it cost and will your company get the benefit. Don’t get caught up in the buzz. Look carefully at your options.
Till next time.
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