He shows you the money (but do you take it?)
Today’s Scenario:
You’ve been unemployed for three months, but you’re doing something about it. Yes, you’re ready to take control of your destiny and start up your own business.
You’ve come up with a life plan after poring over the simple process we provided you in our life-changing book. (shameless plug)
You’ve also developed a business plan to fit your life perfectly. Finally, you’re poised to run your own show, be your own boss, answer to no one but yourself! The table is set. WahoOOoo!!!
But wait. Now you need money–$22,000, according to your business plan. Hmmmm.
The bank turns you down–you’re too much of a startup. "Come back when you have two years of track record."
Your friends and family are tapped. They poured the last of their money into a pop-up camper and the fancy all-in-one workout machine that’s collecting dust in the basement.
Venture capitalists don’t take your calls. You’re WAY off their radar screen.
Enter Mr. Moneybags. He’s not exactly an "angel" investor. He sizes you up, sees you’re desperate for money, and he makes you an offer. He’s willing to give you $30,000, but with the money he’s dangling in front of you, he requires final say on all decisions affecting the company. He also gets control over your salary.
You need money. But are you willing to take this money? Are there other options you should consider?
P.S. (Shameless plug #2: You can visit Chapter Six of our book to find some great solutions and advice regarding finding and dealing with the money people.)
P.P.S. Check out a similar situation that StartupNation’s own Short-Sighted Bob found himself in… it might take a while to load, even after the player pops up.
Entrepreneurs, chime in!!!
June 10th, 2005 at 10:54 am
Shameless plugs aside … you don’t take the money.
If accepting the cash results in you relinquishing control and possibly limits your personal earnings, then aren’t you essentially a puppet? Your ‘investor’ controls the strings by making the final decisions and dictating your each and every move.
Great entrepreneurs have perseverance; find a more complimentary investor.
June 10th, 2005 at 3:44 pm
I wouldn’t take the money under his conditions. This deal would essentially give away your company and make you an employee without any control. (the complete opposite goal for entrepreneurs) If possible, I’d negotiate terms with very narrowly defined conditions that both parties feel comfortable with. If my gut instinct said "no"…I’d trust it.
June 15th, 2005 at 12:07 pm
Don’t take the money! Use your imagination to find another, more suitable investor. What good is your dream if it becomes your nightmare. You want to control your own business…so keep looking.
June 15th, 2005 at 3:11 pm
Wouldn’t yoube right back where you were 4 MONTHS ago..employed..as an employee??
June 15th, 2005 at 4:43 pm
I’d take the money if he were willing to sign an investor’s agreement and invention agreement signing over all the rights to invention over to me as a principle in teh corporation. At most I would give the corporation, [him included] 25% ownership of any intellectual assets. I doubt he would keep his offer.
Everyone needs an exit strategy.
p.s. dunno why the URL is invalid in Moz FireFox browser: http://www.capital-b.com
June 15th, 2005 at 4:55 pm
I would NOT take the money. If the business is successful, he has a good business and you as an employee. If it isn’t you still owe him the money. I would bw willing to pay a little more interest because of the risk involved, but keep it a straight business deal, and keep total control over the company.
June 16th, 2005 at 4:38 pm
love the instincts and wisdom you’re demonstrating in the "Show Me the Money" blog challenge! see our next blog entry for our thoughts on this subject.
and stay tuned for next week’s challenge. it has to do with bringing people (new hires) into your business. even if you’re a sole proprietor, you’ll get a kick out of it…
-Sloan bros
August 7th, 2005 at 2:15 am
How do you get money then if the Banks are turning you down. The only opportunity you have is to take the $30000.00 and see what happens. The banks always say no!
August 7th, 2005 at 9:43 pm
Actually, tracy, this is a common misconception about banks. If you approach a bank that works closely with the SBA and provides SBA-backed loans for startup companies, you CAN get a loan from a bank.
Otherwise, as you say, your chances are slim–you’ll need about 2 years of track record in business to get a loan from a bank.
The best source for money is from an angel investor or from friends and family… or best of all, using your own bootstrapped funds. You should check out the "Goldilocks Approach to Finding Funding" in our book, [i]StartupNation[/i].
August 8th, 2005 at 9:33 pm
I have had three companies offer "money" for our company. Turned ALL of them down. Bad deal is a "GUT" feeling. If you dont take your eye off the ball, you wont fall for the bad guys.
Remember, you became an entrepreneur for one reason. To be able to live your dream. However, it is always a good test of your entrepreneurial spirit and to be challenged by a "gift" to good to be true is extremly gratifying.
It is the best feeling in the world to turn down a bad offer, which includes a lot (or a little) money.
September 29th, 2005 at 3:23 pm
I know of a story where the inventor creates a genious new product, but can’t fund it… he has no money, then along comes an angel investor in the same situation as discussed in here, with a firm hold on financial decisions, "pulling the puppet strings" if you will.
Later the product becomes profitable, yet, the inventor has most of the equity but no salary or barely a share in the profits (for backdating payments to the angel investor in the original agreement of funding)… uh oh!! What happens now? The investor who minimized the profits the inventor would make in the agreement wins, because the inventor has to sell out equity to the investor because they are broke, even while profits come in… while more company is given away, eventually the company is owned in majority by the original angel investor.
Find a way to do it yourself, make the business work then scale it and hire people who agree with your vision… It’s the only way, get a second or third job… save up the $22grand and keep your idea on hold, work hard then make it happen. $22k is nothing anyways, students go $50-100k in the red zone for HBA/MBA degrees, just find a way.
December 29th, 2005 at 1:49 pm
I have a new product that will provide 100% protection for the sun’s harmful rays from ever getting to your skin. With skin cancer on the rise, it is very much a needed product. It will be lightweight, strong, and unisex. I would be willing to sell 50% of my new product business or will need $100,000 to build prototype and start manufacturing and advertising. If I can save just one person from getting skin cancer, I would be successful.
Thank you for your response.
Katherine Hora
December 31st, 2005 at 9:12 am
Simple…walkaway! Entrepreneurship is everything YOU want it to mean not what someone dictates to you!