Money Comes in Many Shapes and Sizes
In the past few months, I have heard more than a handful of stories about financial commitments made that never showed up. What is shocking is many of these commitments have been made from funds that have yet to raise their own capital. They are not insignificant amounts of money.
The founders, most who are going through this the first time, believe that the commitments are real and then stop fund raising. Time passes and then the truth comes out. Well, it is going to take a few months because we actually don’t have the capital yet. How do you think employees would react to founders not being able to make payroll because they just have yet to raise the capital to pay them?
It is not just LP’s doing this to companies but LP’s doing this in funds to funds. I know of one LP who had signed documents with a founder for $1.5m and decided not to wire. What do you do but scream, scale down and regroup. Are these people just bad players who have zero idea how to behave or do they just not care as long as they can remain in the game?
I went to an event the other night with only founders around the table. We talked about the importance of good capital. How truly good investors can be game-changing for your company. They get it, they have been there, they understand the game and their advice is priceless. You don’t know how good that is until you get that.
Certainly if you need capital, you take it where you find it but do your research. If the investor isn’t a known entity, don’t stop raising capital until you have the money in the bank. I do believe in what goes around comes around. Play the game the way it is supposed to be played and that means do not hand out cash when your pocketbook is empty.