I spent the last hour or two looking at different Q&A websites where entrepreneurs ask their questions and get answers from other members.
And I left pretty frustrated.
You see, a lot of times good questions are being answered by other newbie entrepreneurs who don’t have a clue.
Now, I don’t want to mention the sites where I read these questions and answers, as I don’t want to create any new enemies. But I want you to be warned that a lot of the answers on these sites are really bad. And following some of this poor advice could get you in trouble.
So, as always, I strongly suggest that you get at least one Advisor who’s “been there, done that” and can help you on your entrepreneurial journey by expertly answering your key questions. Read this blog post for more on the importance of Advisors.
So, here is one question that I just read on a Q&A website that got butchered.
The question was “What percentage of my company should I give to matchmakers that introduce me to venture capitalists?”
One of the answers was as follows:
In the words of Michael Corleone:
“Senator? You can have my answer now, if you like. My final offer is this: nothing. Not even the fee for the gaming license, which I would appreciate if you would put up personally.”
Give them nothing. They want equity just to make an introduction? That is ridiculous.
Now, I’m a big fan of the Godfather movies where this quote came from, so I have to admit that reading the answer made me smile at first. But the answer is dead wrong.
I can’t reiterate how important it is to raise the money you need for your business. In general, without money, there is no business. Do you want to own 100% of an idea, or 20% of a $50 million company (realizing that an idea that’s not now or soon generating revenues is pretty much worthless)? I’ll take the $10 million over nothing.
Vince Lombardi once said “We didn’t lose the game; we just ran out of time.” My feeling is that if you’re able to raise enough funding, you can NEVER run out of time. And in fact, most of the time your game can’t even really START without funding.
So, if you have to pay someone to introduce you to investors, then do it. Likewise, if an investor wants a little more equity than you’d like to give them, give it to them anyway so you can raise the money (that being said, if you raise money properly, you’ll have multiple investors interested in funding you and you’ll be much better able to dictate the terms).
Once again, you absolutely positively MUST raise the funding. So you need to be flexible.
Finally, with regards to matchmakers, I’d like to add that you generally never pay them too much. For example, even if a matchmaker requires you to pay them 25% of the proceeds of the money they raise for you, most likely the funding source won’t like this (because they want the money to go to you to grow your company). As a result, if the matchmaker’s fee is too high, it likely will get negotiated down during the final transaction negotiations.
So focus on raising money. And don’t be greedy. If it costs a little more (in cash and/or equity) to raise the money, so be it. Use the money to grow an enormously successful business. And when you cash out, you can start another business. And this time, you’ll have plenty of your own money to do it with.