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Ego check Featured

9:26am EDT October 29, 2001

Almost all entrepreneurs have been told and understand that they should abandon their egos when seeking capital and when bringing in professional management.

Understanding this intellectually and putting it into practice are two different things, and entrepreneurs must act without allowing their egos to affect their actions.

Capital sources understand that you have worked very hard to accomplish what you've brought to them, and also understand how dearly you hold your efforts. Entrepreneurs must understand that capital sources work equally as hard, and are just as possessive about their accomplishments and resources as entrepreneurs are.

These understandings about ego and capital's position must be fully internalized and practiced, particularly when you talk with a capital source that has expressed more than a passing interest. If your funding efforts have progressed to the point of more than one personal meeting, you've made significant progress in your search for funding. Now is not the time to lose your cool or get ticked off.

A capital source may apply pressure to see how you react. This is a fair practice, for your funding source knows you'll face high pressure situations after funding, and wants to see how you respond. If you fall apart under during due diligence, you're not apt to respond well in the marketplace where it really matters.

I know one West Coast venture capitalist who makes it a practice while hearing a pitch to tear apart the business plan to see if the entrepreneur addresses the criticisms and later requests another meeting with a stronger plan. Is this fair? You bet it is, if you want to get funding from that and many other VCs. This is not an intellectual exercise but a bottom line investment opportunity the capital source is evaluating.

Part of checking your ego at the door is being flexible. You might have a preconceived idea of how you want the deal structured, which is different from how capital wants to structure it. I'm not speaking about valuation, often a point of contention, but about the structure and expectations of doing the deal.

I've seen the proposal of an unexpected structure cause the abrupt end of good faith negotiations in a deal that could have been done. The entrepreneur was so taken aback by the first part of the proposal that he ended discussions and the meeting before he heard the benefit side of the structure.

He didn't yell or carry on, but he ended negotiations before everything was on the table. He took what he was hearing as an insult.

Without getting ego involved, which caused him to perceive the structure as an insult, the entrepreneur would have gotten the full impact of the proposal, instead of just hearing the part he found unacceptable. Without ego, a counteroffer could have been made and possibly accepted. Ego or insult, depending which side of table you were on, killed the deal.

Entrepreneurs are faced with a buyer's market in the early stage capital market. This doesn't mean entrepreneurs must accept abusive treatment or terms, but they have to be willing to listen to all possibilities and vary from preconceived deal structures.

The goal for both the entrepreneur and the funding source is to make money. It's rough out there for capital sources, just as it is for entrepreneurs, so if you have an opportunity to get a deal done, don't let ego or perceived insult kill it.

Erwin Bruder (ebruder@primcapital.com) is managing director of emerging enterprises for Cleveland-based Prim Capital Corporation. He can be reached at (216) 830-1111, ext. 2220.