ý Never proceed with the planned venture until the full amount of necessary capital is in the bank.
Becoming undercapitalized is a common and dangerous mistake. Many companies procure a portion of the capital needed and then rush into implementation in the hopes of raising the remainder along the way. In almost every case, the economy works against them, and the shortfall turns the entire project into an unrecoverable investment.
ý Never raise more money than needed to meet the objective.
Selling more equity than necessary only serves to dilute the ownership position at a lower valuation. And in the case of debt, why pay interest on unneeded funds? As tempting as it may seem, don't take all the cookies at once. It's much smarter to raise just the right amount of money, accomplish the objective, grow and improve the company's capitalization. By the time capital is needed again, perhaps a few years later, the business will have grown. Then it can raise additional capital through sale of equity with less dilution or take on debt at a lower interest cost.
Getting the Stars to Line Up
The IBM's and Microsoft's of the world didn't reach astronomical size with a big bang. They made the stars line up for them by adopting sound growth principles right from the very beginning. Those principles are neither complex nor mysterious. They boil down to simple good business practices revolving around an intelligently crafted plan and a series of smart financial decisions that align each expansion phase in the direction of the long-term strategic goal.
Jeff Stone is Managing Director, Crescent Fund, a Wall Street private equity consulting and promotional firm that provides corporate capitalization and investor relations consulting services. Crescent Fund manages a private equity fund and invests in private equity investments. www.crescentfund.com