How Some Venture Capitalists Try To Rob You Blind
Probably the single best way to finance buying a business is with investors.
And definitely not loans from other non-banking organizations.
However, I recently heard something that made me think twice about exactly what kind of investor financing is best.
You see, while it’s true investor financing means you don’t have to pay any interest (after all, they are investing money, not loaning it), not all investors are made of the same stuff.
In this case, I learned about a dirty little trick many of the more “unscrupulous” venture capital firms will play on people. And that is to sort of “string you along” when you ask for money.
In other words, they will keep saying you will get the money you need next month or next week or whenever.
But in reality, they have no intention of giving you anything until the last possible minute.
Because, as any con man knows, when it comes to giving someone money, the longer they wait to give it to you…the more desperate you’ll be.
And the more desperate you are, the more they can ask from you in return.
In the case of venture capital firms, it will usually be getting more stock (and thus, control of your company) for their money.
It’s a terrible thing for them to do. But many venture capital companies do it and so, you should be careful if you use one.
But really, this shouldn’t be a problem for 99% of people who buy a business.
Because if you are buying a smaller business, venture capitalists generally won’t bother with you anyway (that’s where “angel investors” come in to play).
And if you are buying a larger business (worth, say, $5, $10, $15 million or more) there are plenty of private investors — with more money than they can spend — who will give you whatever financing you need if what you are doing makes sense to them.
Anyway, keep this article in mind when thinking about how to finance a business you want to buy, especially if you don’t want to use a bank or other creditor.