Its been written many times over that selling shares in your business and taking on equity capital in return is many ways like marriage… long term potential commitment, relationship challenges, the difficulties in breaking up, and so on.
I’m not going to recycle this analogy. Instead, I want to focus on the preamble and courtship that comes prior to the union and I want to look at it from both sides of the courtship.
From the point of view of the business owner seeking capital, the process can be many times drawn out and rather grueling. Any interest that does surface can easily be mistaken as love at first sight due to the stressed out and/or desperate nature of the those seeking capital.
Like any courtship, there should be a dating process whereby several meetings take place over a period of time to see if there is a worthwhile relationship to develop or not. Those seeking capital can develop tunnel vision over the physical (money) attributes and overlook other characteristics and flaws that should be evaluated as well.
Regardless of how tired or desperate your search for capital has become, a proper courtship should still be undertaken before jumping into bed with a potential investor. Every investor has a history, a past, a lending portfolio and strategy that one would be well advised to learn about before cashing any checks.
From the investor side that provides equity capital for an interest in a business, the same need for courtship also applies.
Investors, for the most part, are more courtship oriented, especially those that have previous investments notched in their belt and have likely seen a lot of what can happen when there is a Las Vegas type wedding ceremony between the parties soon after meeting.
An investor is far better served by playing a bit hard to get and being prepared at the outset for an old fashioned courtship. As mentioned previously, the business seeking capital is too often in a hurry and wants to get funding in place as soon as possible. These capital seekers can provide well polished presentations and convincing arguments why they should be the ones chosen to receive equity capital.
The interesting thing about courtship is that many times the applicant for capital can’t provide any great level of substance after the flurry of the initial presentation and first few dates. If an investor can find an opportunity with some real staying power over several meetings as well as being able to hold up to some background checks and story verifications, then there may be a serious relationship in the making.
While both sides can feel the pressure of outside competition competing for the others affections, in the end, goodness of fit is more of a courting process than an intense weekend fling.
For those couples that take the time to put each other through their paces, the resulting opportunities will be far more rewarding if further pursued and far less regrettable if the process of courting equity capital reveals significant blemishes and warts lurking beneath the surface that otherwise would have been overlooked or gone unnoticed until after the wedding.