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10 Things You Need to Know About Raising Capital

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10 Things You Need to Know About Raising Capital


Rule #1. Generally speaking, you will need five years of operating history and more that $5 million in annual sales.  
Rule #2.  The equity capital source will most likely dictate the terms of the deal and they will most often demand control and substantial equity. This source of capital may also dictate your compensation, overhead allocations, and be at odds with your concept of the American dream.  If you want to dictate the terms of the deal and maintain control of your company's destiny while increasing the probability of being funded, then you will need to conduct a securities offering.
Rule #3. When raising capital, you must comply with Federal and State securities laws or face the consequences.
Rule #4. Prior to structuring the deal, producing the proper securities offering documentation, or conducting a full blown securities offering effort, one should "test the waters" by researching the local geographical area for Angel Investor interest, as well as, their own personal market of private capital contacts.
Rule #5. There are no guarantees when it comes to raising capital, only degrees of probability. The degrees of probability increase in direct correlation with the amount of seed capital available to promote the capital raising effort
Rule #6. For start-up and early stage companies, your capitalization plan should request the minimum amount of equity capital needed to bring your firm to the $5 million in annual sales to engage an investment bank to sell your company's securities.
Rule #7. Most entrepreneurs are under the impression that their offer is the greatest opportunity.   Investors will consider this be a naive position.
Rule #8. Most entrepreneurs make the mistaken assumption that once they receive their funding the company's secrets, employees, et cetera, will protect their operating margins.  Again, investors will consider this to be a naive position
Rule #9.  Most securities brokers do not fund start-ups or early stage companies. Why? There is very little money in it for them, the deals are too small, too risky and the stock is usually very thinly traded. 
Rule #10. Sadly, most entrepreneurs go through the arduous task of attempting to raise capital, for about nine months, before they realize what has been disclosed here is brutally true. By then, they are out of money, patience, and had it with broken promises, so they simply give up.

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