How some venture capitalists are trying to rob you blind
Probably the best way to finance the purchase of a business is with investors.
Not banks.
Not family.
And definitely not loans from other non-banking organizations.
However, I heard something recently that got me thinking about exactly what type of investor funding is best.
You see, while true investor financing means you don’t have to pay any interest (after all, they’re investing money, not borrowing it), not all investors are made of the same stuff.
In this case, I learned about a dirty little trick that many of the more “unscrupulous” venture capital firms will play on people. And that is to “string” you when you ask for money.
In other words, they will keep saying that 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 moment.
Why?
Because as any scammer knows, when you have to give someone money, the longer they wait to give it to you…the more desperate you will be.
And the more desperate you are, the more they can ask of you in return.
In the case of venture capital firms, they will usually get more stock (and therefore control of your company) for their money.
This is a terrible thing for them. But many venture capital firms do, so you should be careful if you use one.
But really, this shouldn’t be a problem for 99% of people buying a business.
Because if you’re buying a smaller business, venture capitalists usually won’t bother you anyway (that’s where “angel investors” come into play).
And if you’re 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 provide whatever financing you need , if what you want them to do makes sense to them.
Either way, 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 lender.
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