Venture financing can be a real win/win situation for the private investor and the entrepreneur with a “home run” idea. This win/win situation can become sour if there are not particular safe guards kept in place to make sure everyone is on the same page. Let’s look at some of these strategies now.
During the heat of acceptance of your idea as an entrepreneur you can often forget to be aggressive about negotiating at the right time. Most private investors or venture capitalists are quite happy to be a silent partner but some may get the impression that because they loaned the funds, they make the rules. This can get tangled and suppress progress of a new start up when the investor begins dictating to the appointed management what should and should not be done.
So apart from the deluge of demands during negotiation about the expected rewards for the investor it is important to establish clear guidelines as an entrepreneur, what the acceptable behavior is and make sure everybody is clear on these.
Another mistake or pitfall an entrepreneur will make upon successful negotiation of funding is the timing and how the funds are released. Typically venture capital is released at designated progress points, much like a builder gets progress payments at key points of the erection of the building. This can get confused and muddled during negotiation in an effort to just get the deal done. This can be a big mistake if everyone is not clear about when and how much each progress payment is made, as what if you need a large initial fraction of the agreed amount to tool up a factory, but the investor assumes you only need a much smaller fraction initially, this can be a problem if you don;t have all the equipment you require.