Andrew Sherman, in his book “Raising Capital,” identifies a number of investment search mistakes. As we learned when we reviewed some of those mistakes in last week’s column, there is more to acquiring investor capital than writing a business plan.

Below are the rest of Sherman’s “mistakes,” each followed by my thoughts.

Mistake: Not understanding the investor selection process

Don’t deliver information with a fire hose when a pitcher is preferred. If there is interest, investors will request the full details as needed.

You will probably need three documents: an initial, one-to-three-page executive summary (the pitcher), an intermediate page of about 10 pages, and a longer version with all numbers and research (fire hose). Use the last two as details are requested.

Mistake: Too little research and analysis

You must have market/industry research and analysis to back up your assumptions and projections. Investors don’t value promises or hunches.

Even though you shouldn’t show your extensive data until requested, reference and summarize what you’ve learned in the short models.

Mistake: Underestimating the funding chronology

If your funding requirements and the investor’s investment schedule are not in sync, guess who makes adjustments? Remember, to an investor, urgency sounds like desperation.

Mistake: Being afraid to share your idea

Sherman says you can’t sell if you can’t tell. Get a nondisclosure agreement that fits your project and use it. Investors expect to sign an NDA.

Mistake: Being dollar-wise and investor foolish

Here’s a trick question: Which is the best alternative: a) $1 million from investors who know nothing about your industry or b) $500,000 from investors who have industry background and contacts? Since the value of an investor relationship is usually more than cash, “b” is often the correct choice. Consider all forms of investor participation when evaluating an offer.

Mistake: Getting hung up on initial ownership and control

Establishing ownership and control is where most investment negotiations break down. Here’s a handy rule: He who has the gold makes the rules, which usually includes control. Business founders are typically better served focusing more on the investor exit plan and less on initial control.

Accomplishing a successful investor relationship requires thoughtful preparation plus skillful negotiation.

Write this on a rock …

Know the rules before pursuing an investor search.

Jim Blasingame is the host of The Small Business Advocate Show. Jimb@jbsba.com, SmallBusinessAdvocate.com and Twitter.com/jimblasingame.

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