What Not To Do When Raising Capital

According to a recent article in the Denver Business Journal, business owners working to raise money from investors can improve their chances for success by avoiding some very common mistakes. The author outlines eight common pitfalls that all entrepreneurs should be aware of:

1. Approaching Investors too early: unless you’re already a famous entrepreneur, new businesses need a proven track record and a number of other strong pieces in place before asking for money.

 

2. Ignoring state and federal securities laws: a mistake in this area will not only harm your business now. It will hurt your chances in other fundraising efforts in the future.

 

3. Accepting money from non-accredited investors: business owners need to know what they are doing and the risks involved, particularly in meeting SEC regulations, when accepting any funds from non-accredited investors.

 

4. Compensating a finder or unregistered broker-dealer: this type of payment can force business owners to compensate investors.

 

5. Overvaluing or undervaluing the company: raising capital under an inaccurate valuation can have serious repercussions down the road, including dilution for investors or loss of ownership for the entrepreneur.

 

6. Selecting the wrong investors: the wrong investors can have far reaching effects on any business, from mismanagement to difficulty in attracting other investors.

 

7. Using an overly complicated and expensive investment structure: this can create headaches, legal fees and other unnecessary complications.

 

8. Neglecting the necessary legal agreements: properly outlining terms, conditions and any transactions is critical for business owners.

 

To read the full article in the Denver Business Journal, please click here.

 

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