"Ten Things Not to Say When Talking to Your Investors..."

I though we'd end the year on a slightly humorous note with the Ten Things Not to Say from David Gladstone's "Venture Capital Handbook." I say slightly because even though each of these items may sound humorous, people have said them in one form or another.

1. My wife and I have decided to move to Florida where the weather is warm so that we can both enjoy the outdoors more. Even though the business is located in Massachusetts, I will be able to run it from Florida.
2. Some friends and I got together and we purchased the franchise to a doughnut operation. I am putting $25,000 of my money into the deal through a second mortgage on my house, and my wife and I are going to help operate the doughnut shop.
3. We have been negotiating with another small business and have now entered into a final agreement to acquire it. We're going to give up about 30 percent of the stock in our company in a stock swap for their company. I didn't talk to you about it because it's such a good deal I knew you would like it.
4. We came up with a new product. It is unrelated to our business but it's in the solar energy field. I have been meaning to tell you about it. We have spent about $200,000 developing the product and we are now producing it at the rate of about two hundred a week. We have a warehouse full.
5. We now have seven new regional offices that cost us about $80,000 each to set up. We wanted to set them all up at once in order to penetrate the market quickly. I didn't call you because I knew you would think it was a good idea to make a fast move.
6. I sold 200,000 shares of the company's stock at $1.00 each to some friends of mine. I know this represents 20 percent of the company, but I just couldn't pass up the opportunity for a quick $200,000. After all, you and I only paid $.25 a share and we have been able to sell the stock now for $1.00 per share. That makes the company worth more.
7. Two of our accounts receivable customers who owed us a total of $20,000 declared bankruptcy on the same day, and it would seem that our claim in the bankruptcy court is probably worthless. This will lower our profits by $20,000 and, as you know, make the company a break-even operation for the first six months.
8. I am out of money and can't meet Friday's payroll. I know the cash flow projections showed that we had enough money to last another year, but in checking through my cash flow projections I found a $70,000-per-month mathematical error. I thought we were using cash awfully fast three months ago, but I thought it would turn around soon. I am sorry. What can I do?
9. We just finished the prototype of our initial product. I immediately turned the engineers loose on four other products we should be developing. It won't take much time or money to sell our prototype and to get the manufacturing process going. Then we'll really be rolling in the money. Meanwhile I know there are other products that we can develop for the marketplace.
10. This recession is killing us. Industry sales are off 35 percent. I don't want to cut anymore overhead because I am sure sales will turn around. I put on a television blitz for the last two months. However, it didn't work and now we are completely out of working capital. Can you invest some additional money?

You can get all the details about why statements like these will undermine your credibility in David's Venture Capital Handbook.

Wishing you a very happy and prosperous new year,

Mike Elia

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