Approaching Investors – Use of Proceeds
Posted by Dr. Earl R. Smith II in Questions, tags: adviser, advisory board, angel investor, board of directors, CEO, chairman, coaching, consulting, director, dr earl r smith, dr earl r smith ii, earl r smith ii, earl smith, Executive Coaching, federal circle, federal contracting, funding, Governance, government contractor, investing, investment, investor, Leadership, leadership assessment, leadership coaching, leadership development, leadership styles, management assessment, managing partner, Personal Growth, the federal circle, turnaround, Turnaround Management, Venture CapitalDr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
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One of the biggest issues in any discussion with potential investors centers on the use of proceeds. Many entrepreneurs want to use the funds to pay their own salaries. Investors prefer that funds go towards other expenses – particularly those directly connected with revenue generation. Part 4 of my series on Investment Grade ( http://www.dr-smith.info/the-money-chase-what-does-investment-grade-mean-part-4/ ) focused on this very important issue. What is your take? What is the best approach to most effectively using the proceeds of an inward investment?
© Dr. Earl R. Smith II
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Related Articles:
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The Money Chase: What Does Investment Grade Mean? Part 2
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The Money Chase: What Does Investment Grade Mean? Part 3
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The Money Chase: What Does Investment Grade Mean? Part 4
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The Money Chase: What Does Investment Grade Mean? Part 5
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The Money Chase: What Does Investment Grade Mean? Part 6
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The Money Chase: What Does Investment Grade Mean? Part 7
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Dr. Smith is Managing Partner of The Federal Circle. The Federal Circle partners with teams and existing companies. We help them up their game and win big in the Federal space. We also arrange funding for acquisitions and expansion by acquisition. Our model is based on the belief that, if you select the very best and work with them in a highly professional and focused manner, the results will be truly amazing. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.
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Investors think differently at various stages of a company’s lifecycle. It is almost unheard of that early stage investors would fund salaries for the founders. The entire point of seeking funding at early stages would be to accelerate productization and market development. Founders get equity, but certainly should discuss a pay for performance model with investors in order to arrive at a risk profile that is acceptable to everyone. As the company begins to generate revenue and needs more funding to build out, then salaries can derive from profits.
To your question of the best use of inward investment, it depends on the industry and the market. For instance, in industries with long investment horizons (such as smart grid) the money might go more toward R&D and the cultivation of relationships with established entities. In a software vertical such as mobile apps, it might go more toward early reference customer cultivation, and feature set.
I think it’s also worth noting that funding may take forms other than investment by VC – and what type of event that might be would depend on the goal.
Posted by Rich Johnston
This is a very interesting question. I am in the quandry of running a startup and funding it with consulting revenue. The issue with going to an investor would be whether I can concentrate on the startup (enough to satisfy an investor) while staying on consulting revenue. If not I would need to use investor money to work full time on it. As it is I work about 60 – 80 hours per week between consulting and the startup and have now had to farm out my developers on other paying projects at least 3-6 months a year in order to stay afloat. When I am lucky I get to be paid working on projects which help to develop the software products we are building but putting me and the developers full time on the product would accelerate things dramatically..
Posted by Michael Clarke
Hello,
I like this topic.
The best way to use the money of an inward investment is to focus on investing in the actions and the people who are going to bring the project to the next milestone according to specs and within time and budget constraints.
The investors’ point of view is sometimes puzzling.
Who is going to generate the added value? And why should these people not be paid at fair market price?
There is a lot going on saying that entrepreneurs must “suffer in order to deliver” sic.
I believe that an entrepreneur is managed by her/his drive to succeed, not by the promises of good and easy life with plenty of others money to spend.
An entrepreneur is not a manager and that’s what investors have to find out and decide about when they “scrutinize” the team.
That goes for large groups as well where you can hear comments such as “if we buy the company and run it then we pay twice” (remember you exchange some cash today against some revenue tomorrow, no matter who’s doing the job.
“Our people are our best asset”! How many times have we read/heard this? Naturally, the cheaper the asset the higher the ROI? Well we also hear you pay peanuts you get monkeys.
Keep investing in ideas, and people!
Posted by Jean-Louis Roux dit Buisson
Hope that the whole world news media and reporter report this information
Dear journalists, reporters from around the world:
I started the creation of International Language Organization, I call, The whole world any one country Provide Dwelling place to the international language organization.Please report the news. Your report is the language of progress to The human being’s contribution. International Language Organization will record your achievements.
Relative to the economic and scientific development, The human being’s language development is Fall behind. Create International Language Organization, will drive The human being’s language was great progress, today’s The human being will evolve to advanced The human being.To create the International Language Organization, needs a Country Provide Dwelling place; as the United States to Provide Dwelling place as the United Nations.
Any country has the right and obligation to Provide Dwelling place, Become the founding country, this is for The human being has made great contributions to progress in the language. Founding country The whole world will be the language of the Holy Land, will be The whole world praise, will be a great honor, to increase international exchanges and friendship.
Following is introduced, International Language Organization’s basic situation:
1, International Language Organization’s Mission: to promote The whole world of Linguistic science development; promote The human being’s language progress.
2, International Language Organization’s main tasks: (a), brings together The whole world the power of each country, bringing together academics and language for each language the power of institutions to carry out linguistic research; (b), the creation of the language of most scientific theories; (c) to promote the progress of language evolution The human being; (d), to solve the problem of international communication language barrier.
3, International Language Organization of Organize way: the implementation of national membership, The whole world of any country has the right and obligation to become a member. International Language Organization invited The whole world all the linguists, language enthusiasts, language groups, to participate in language studies.
4, International Language Organization of institutions: the Assembly of Member States; Council; executive council; Chairman; Secretariat; academic research; member departments; diplomatic service; Protection of National Language Commission; Association honorary president for life (in the Lifelong honorary president of the a large number of cases, the establishment of this department). Subsidiary body of academic research: Language Sciences; the world’s common language research center; World Universal Grammar Research Center; World General Punctuation Research Center; World Language and Culture University; Language Foundation; Language Progress Award; world language forum.
Posted by gaigai lun