{"id":4836,"date":"2022-01-20T10:00:04","date_gmt":"2022-01-20T18:00:04","guid":{"rendered":"https:\/\/berkonomics.com\/?p=4836"},"modified":"2022-01-06T13:25:59","modified_gmt":"2022-01-06T21:25:59","slug":"the-best-advice-startups-will-never-follow-2","status":"publish","type":"post","link":"https:\/\/berkonomics.com\/?p=4836","title":{"rendered":"The best advice startups will never follow"},"content":{"rendered":"

Dave\u2019s note:<\/strong> \u00a0This is a reprint of a 2015 insight that seems to have struck a chord with investors and entrepreneurs. None of this advice has changed…<\/em><\/p>\n

Let me tell you a few short hair\u2013raising stories of entrepreneurs who have raised money and regretted it later.\u00a0 Here are some rules that entrepreneurs almost always ignore to their future peril.<\/p>\n

Don\u2019t take money from relatives who can\u2019t afford to walk away without remorse.\u00a0\u00a0 <\/strong><\/p>\n

Do take money from experienced family members only after you ask them if they are sure\"\" three or more separate times.\u00a0 By the third time you can be sure that they aren\u2019t being overly emotional or feel they can\u2019t say no.\u00a0 Also, if things go south, they are more likely to remember that you weren\u2019t pushy and that you gave them three or more separate opportunities to say no.<\/p>\n

There\u2019s a common expectation among entrepreneurs that seed money from family is great \u2013 letting close relatives in at the ground floor. \u00a0The problem, of course, comes if the business fails.\u00a0\u00a0 Some relatives believe that a family bond is an insurance policy, and that all investments or notes will always be repaid, no matter what the circumstance.\u00a0 Consider whether the family member being asked to invest has the capacity to walk away \u201chappily\u201d from a lost cause.<\/p>\n

Don\u2019t take money, especially start\u2013up loans, from unsophisticated investors.\u00a0\u00a0 <\/strong><\/p>\n

I was a co\u2013lender and assumed the chairmanship of a young startup where the entrepreneur\u2019s cousin also loaned money under the same terms.\u00a0 When the business failed, the cousin sued his own relative, me, my wife (who didn\u2019t even know the names of the players), and even my family trust (an estate planning vehicle with no separate assets.)\u00a0 It took several times the value of the cousin\u2019s loan in legal fees and settlement just to extradite my interests from a suit that had no merit \u2013 but would have cost hundreds of thousands more just to get to trial.<\/p>\n

Do take loans from sophisticated investors only after you have tried everything to get them to purchase equity\u2026<\/strong><\/p>\n

[Email readers, continue here…]\u00a0<\/em><\/span> \u2026and always with clear wording on automatic loan extension if you are making progress but need additional time to meet the full set of goals.<\/p>\n

Don\u2019t talk yourself into a high valuation for the first round of financing for any reason\u2026<\/strong><\/p>\n

\u2026even if your hair is on fire and the idea is worth billions.\u00a0\u00a0 This lesson is one that is not only hard to teach, but ignored by entrepreneurs on a regular basis.\u00a0 Early investors who don\u2019t have the experience to compare value or ask tough questions accept the word of their entrepreneur as to valuation.\u00a0 Later investors will enter that picture only after insuring that valuation is reasonable and comparable to other opportunities for their money, but often will walk from a deal if the valuation for earlier investments was so high as to cause pain for that cohort.\u00a0\u00a0 It\u2019s just not worth the effort to argue with early investors when there are so many other deals calling for the sophisticated investor\u2019s money.<\/p>\n

Try not to take \u201cdumb money\u201d where the investor or lender supplies nothing other than cash.\u00a0\u00a0 <\/strong><\/p>\n

\"\"There are five attributes of a great investor (see my book, \u201cExtending the Runway\u201d), the money they offer at reasonable terms, their ability to guide you with advice about the context of your business plan in relation to the marketplace, their experience in the process of growing a company, their knowledge of how to best use corporate resource time, and finally, access to their extended relationships with others who can help speed growth.\u00a0 Those four additional assets are worth as much or more than the cash offered.<\/p>\n

Don\u2019t walk away from rejection by experienced investors thinking that they are stupid or just don\u2019t get it.\u00a0 <\/strong><\/p>\n

Most of us in this world of early-stage investing have seen thousands of proposals, good and bad.\u00a0 Even if we don\u2019t seem to get your brilliant idea and buy into its value, we may be comparing it to previous lost investments or industry experiences far beyond yours.<\/p>\n

Do ask three sets of progressively deeper questions to get down to the heart of why they didn\u2019t invest.\u00a0\u00a0 <\/strong><\/p>\n

Every contact should be a learning experience. And those with sophisticated investors are doubly valuable.\u00a0 A well\u2013phrased \u2018no\u2019 could well be a step toward a correction of course and a later \u2018yes.\u2019<\/p>\n","protected":false},"excerpt":{"rendered":"

Dave\u2019s note: \u00a0This is a reprint of a 2015 insight that seems to have struck a chord with investors and entrepreneurs. None of this advice has changed… Let me tell you a few short hair\u2013raising stories of entrepreneurs who have … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[4,5],"tags":[],"class_list":["post-4836","post","type-post","status-publish","format-standard","hentry","category-ignition-starting-up","category-raising-money"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/4836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4836"}],"version-history":[{"count":0,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/4836\/revisions"}],"wp:attachment":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4836"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4836"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}