Page 214 - Finance for Non-Financial Managers

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• There may be no one else who believes the idea can work
until the entrepreneur proves it and then can attract
investments. Attracting Outside Investors 195
• The founder wants to keep as much of the stock owner-
ship as possible and believes, or at least hopes, to suc-
ceed without any outside funding.
• Potential investors have suggested to the entrepreneur
that they may invest, but only if he or she first invests
meaningful personal funds. This is referred to as having
“skin in the game.” (Don’t ask how the analogy arose; I
don’t think either of us wants to know!)

So, the entrepreneur calls on savings, talks his or her
spouse into refinancing the house, or asks the parents, aunts
and uncles, and very close friends to invest. Such sources are
typically, and usually accurately, referred to as “friends and
family.” These are usually good sources for initial capital (seed
money), because they have known the entrepreneur a long time
and have faith in him or her or because they feel enough empa-
thy for the entrepreneur’s efforts to be willing to take more risks
than more objective investors might.
This initial injection of money enables two important
changes to take place:
• The entrepreneur becomes a founder, a president and
CEO who now has the opportunity to begin to prove that
his or her idea is good enough to attract investors.
• The entrepreneur can move from idea to reality. He or she
can set up an office, begin development of the business,
hire employees, and create a business plan to serve as
the brochure for the next round in the continuing search
for capital.

Professional Investors: Angels on a Mission
Once the start-up company has a little momentum, perhaps
with a prototype of an invention or a product, some interested