PLEASE Don’t Ask Me What’s For Dinner.
Anyone who has kids knows that dinnertime is a struggle.
The nightmare logistics of getting everyone in the same room at the same time with all their practices, rehearsals, play dates is bad enough. And believe me, when they get to be teenagers, it’s even worse because apparently, teenagers can only function in groups of 2 or more so they fly out the door without rhyme, reason or explanation.
Even if you COULD assemble them (HAH !), there’s the unachievable dream of getting everyone to eat the same thing. Back when I was a kid (when dinosaurs roamed the Earth), we ate what was for dinner, end of story. We ate carbs, we ate gluten, there was no discussion.
Nowadays, “What’s for dinner?” may as well be “What’s the meaning of life?” or “Why does the Earth spin?” It was MUCH easier in the 70’s.
The other day, I was on a call with a client and my very good friend who is a venture capital attorney. The client needs to raise capital and my friend graciously offered to help brainstorm with my client. Long story short, the company really has no operating history but has what looks to be a fabulous future.
Their biggest challenge will not be getting people to buy what they produce, it will be producing it. There will be significant machinery costs, hiring, and likely some supply chain issues, and who knows what else. The bottom line is that the company needs money to achieve its goals.
Sounds simple, right? If the company has a great upside and a product that people are literally begging for, raising money should be a snap (it never is but just bear with me). Problem is that my client doesn’t want to give up any equity and just wants to borrow the money. Without a track record and a history, banks won’t touch this so that leaves the private debt market, which can be quite finicky.
We did our best to explain this and the client said “well, let’s see what investors want and see if we can give them that.” That’s like asking an 8-year-old what she wants for dinner - now there’s a fool’s errand for ya.
My friend said, “You have to know what you’re selling. If you’re selling steak, you sell it to the people that want steak. If you say "I’ll sell you pasta or chicken or fish, whatever you want," you can do that but it's way harder.”
Here's what I’m getting at:
- When talking to potential investors, are you selling debt or equity? (it can be a bit of a combo but again, just bear with me).
- The answer to #1 above is probably right there in front of you.
- Can you prove to lenders that you can pay it back? Lenders just want their money back with the interest you promised and on time - that's it. You prove that you can do that with your history. So really, lenders buy your PAST.
- Does your company have no history but great upside potential (that you can reasonably demonstrate)? If you sell equity, the investors only get paid if the value of the company goes up BUT they share in that upside (they are called “shares” after all). So equity investors buy your FUTURE.
It’s hard for entrepreneurs to come to terms with giving up equity and selling part of their company but sometimes the reality is that it’s better to own a smaller piece of something very big than to own all of something very small.
Well, here are some words of wisdom from people who aren’t me:
- "At a dinner party one should eat wisely but not too well, and talk well but not too wisely." - W. Somerset Maugham
- "Look for your choices, pick the best one, then go with it." - Pat Reilly
- "As a child my family's menu consisted of two choices: take it or leave it." - Buddy Hackett
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