Raising Capital: Don't Be Arrogant And Never Be Desperate

Reproduced with Joel Block's permission below: 

I’ve worked with entrepreneurs day in and day out for many years, and I find that entrepreneurs are clearly the most difficult-to-understand group of people there is. But this difficult-to-understand group of people is also a group I understand best because I’m an entrepreneur too. Although I always expect the encounters I have with entrepreneurs to be unusual, I’m never prepared for what I actually run into!

I ran into a gentleman the other night who I’d met about three years ago. He looked familiar, and when he began telling me about the business he was in, I looked at my hand-held device to see if I knew him. Sure enough, because his story interested me a few years earlier, I had made a brief note about him and about his project.

I told him that I remembered meeting him. Actually, I remembered that three years earlier he was looking for $50 million to build a massive project.

Somewhat embarrassed, he looked at me and said, “I'm not looking for $50 million anymore. Now I'm just looking for $1 million – but anything will do. If you know where I can get $10,000, I would be happy to take that.”

In my experience, nobody makes such a dramatic U-turn in their business. If $50 million is the goal, and then suddenly $1 million will be fine, or $10,000 would be a good start, you’ve set yourself up for failure.

There are several things wrong with this approach. First, if you have a big project that requires big money, then you’d better have a big plan to document what you want to accomplish. Second, if you decide to scale back your project, make sure that you scale it back to a number that can still help you accomplish the goals. In other words, if you throw out a tiny number like $10,000 against the backdrop of a giant $50-million project, someone like me who looks at money for a living would have to ask the question: “What could someone possibly accomplish with just $10,000?”

Ten thousand dollars might be enough for some projects, but it was a pittance when measured against the magnitude of the project that this man had originally described.

What was even more telling than the gentleman’s enormous reversal in the amount of capital he was seeking to raise was the enormous reversal in his demeanor. His attitude had gone from grossly arrogant and rude to desperate and begging for any assistance. He offered me fifty percent of the project and anything else I wanted if I could just get him some capital.

Truth is, nobody will go near a project when they smell that much desperation. Recently, I heard someone say, “Desperation is an odor that you can’t wash off.” That’s true – and it’s also another good reason for to represent your interests in these types of business matters so that if you are feeling a bit desperate, no one will know.

People who are in the money business can smell blood better than any other group. And when they smell blood, they attack.

The moral? Be careful to avoid exposing blood or weakness. And don’t wear your heart on your sleeve. People who invest in companies tend to be tough people. Be careful what you expose.

And if you’re going to be arrogant, be careful not to become desperate. My preference is that you avoid being arrogant in the first place. There’s no reason for anyone to be arrogant. If you do find, however, that you need to pare down your business plan and the amount of capital you are seeking, make sure that your changes are reasonable and continue to hold your head high.

Investors don’t give money to people who don’t hold their heads high.

So as you're working every day to grow your business, manage your attitude. Don't be too arrogant – and never be desperate. If you're going to change your business plan, make sure that everyone understands why there's been a change and how the amount of capital you're seeking will help you accomplish your plan's new objectives.