Finance the Right Way

It is shocking how many people in the “dot-com era” raised large amounts of capital to operate their vague, mathematically questionable ideas. Some “business leaders” ended up with easy, luxurious lifestyles as a result of raising a lot of capital. They would pay themselves in salary or bonuses, sell their own stock shares prior to their company reaching profitability, buy services from their “friends’” companies but finance them internally, or surreptitiously buy billions of dollars of services from their pals who would reciprocate—all to add revenue and hype for their Wall Street IPO appearances.

Nevertheless, what they failed to recognize, or possibly care about, is that sometimes they had done nothing of any value for their shareholders or customers. In fact, the opposite was often happening. Good money was going into companies to theoretically serve as a seed investment in order to develop a quality service platform, but instead, it indirectly went to finance the lifestyles of the recipients.

After having managed a successful and profitable operation, selling out your interests is an entirely different story from raising investment capital. Selling a long-term company with accelerating profits should indeed make you wealthy and enhance your lifestyle significantly. But one should not get rich from seed capital, as what used to occur frequently in the early years of Internet frenzy.

Another mistake is gloating over financing. Instead, it should be a wake up call to signal that you have a lot more responsibility in applying the extra capital effectively. The best bet for companies to use capital properly is for the capital that they consume to have been generated internally in the first place. In this way, they will appreciate the value of each dollar.

There are only two realistic ways to make extra money: earn it or inherit it. Since regular, hard-working folks generally don’t come into inheritance, the most accessible way for them to earn significant cash is by eventually owning part of a business.

A small company raising a lot of capital is analogous to a young person inheriting a lot of money. Those who inherit money are less apt to effectively manage and appreciate it. They often have trouble managing easy money, and therefore, tend to spend in frivolous or irresponsible ways, i.e., invest and protect it poorly.

In contrast, those who didn’t inherit a thing but earned the same amount are much more likely to have a successful money management experience. When you are dealing with the money that you’ve raised to start your business, always be sure to approach it as a hard-earned sum used in only the most
appropriate ways.

Next Section >