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Proceed With Caution!

These six capital-raising mistakes can land your proposal in an investor's circular file.

As far as entrepreneurship is concerned, Joanne Iverson is a modern classic. Although she founded and runs Iverson Associates, a successful computer systems and software consulting firm in Bala Cynwyd, Pennsylvania, this is only her day job. While on assignment for a casino company in the Caribbean, Iverson was drawn into a project involving tracking systems for slot machines. The result was Iverson Gaming Systems Inc.

Iverson found that the product she developed, SlotMaster, which allows a casino to collect real-time data on its slot machines without costly rewiring, had applications for vending machine operators, building managers and arcades. "We see nearly limitless opportunities," says Iverson.

The new company needed about $2 million to launch, and Iverson, who is tough, competitive, competent and successful by any yardstick, tackled the fund-raising project with typical entrepreneurial gusto. But after a year and a half of trying to raise start-up capital and not a dime from investors to show for it, she was left feeling dazed and confused. "I knew we had a great product and that the company could be successful," Iverson says. "But after all that time, I also knew I was doing something wrong. And truthfully, I had no idea what it was."

Indeed, trying to curry the favor of fickle investors can be a vexing challenge for entrepreneurs who know more about the idiosyncrasies of their product or service than they do about the nuances of early-stage venture financing. Entrepreneurs who don't understand the issues near and dear to investors' hearts can quickly become outcasts--in finance, their business proposals are simply known as unfundable deals.

Jim Cassel, founder of Capitalink, a Coral Gables, Florida-based consulting firm that offers investment banking services, including fund-raising assistance, says while most companies are fundable in one way or another, "There are certain issues they can run afoul of which can prove fatal to the capital formation process." Below are some of the ways, according to Cassel, that new companies and the entrepreneurs who pioneer them render themselves unfundable.

David R. Evanson's newest book about raising capital is called Where to Go When the Bank Says No: Alternatives for Financing Your Business (Bloomberg Press). Call (800) 233-4830 for ordering information. Art Beroff, a principal of Beroff Associates in Howard Beach, New York, helps companies raise capital and go public.

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This article was originally published in the February 1999 print edition of Entrepreneur with the headline: Proceed With Caution!.

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