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Take only “smart money” investments

Berkonomics

We have previously made the case that professional investors demand more in the form of restrictive covenants and lower valuations. This statement could be considered controversial. Now we explore the other side of that coin.

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What are the costs of taking investor money?

Berkonomics

Email readers, continue here…] Almost always, professional investors, including angel groups and venture capitalists, also require at least one seat on the corporate board. A seat on your board?

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What if you see juicy competitor information?

Berkonomics

Email readers, continue here…] All of this was immensely helpful in strategic planning and marketing, even though to this day I do not think those CEOs were aware of the value of the information so easily given.

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Let’s talk about your banking relationship

Berkonomics

Email readers, continue here…] Approaching a banker during such times tests relationships. As loan covenants become closer to being violated or after such an event, bankers have some latitude in deciding how to handle their accounts. Relationship banking and you. The dreaded workout group, whatever the name.

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Master of Customer Acquisition, Matt Coffin, On Startups …

Both Sides of the Table

He tells the story of how he was out of cash, stressed out, nobody in LA or Silicon Valley would give him money, he had finally found an investor in Minneapolis but his venture bank was going to shut him down for breaking a “covenant&# in their agreement by not having enough cash in the bank. The answer?

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An economics lesson for growing companies

Berkonomics

Email readers, continue here… ] The banks want to maintain their venture relationships and of course, want to use the existing company cash in their bank as collateral for – you guessed it – their loans to the company. Read the loan covenants carefully. Ironically, the term is “compensating balances”.

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Several more real costs of taking outsider investments.

Berkonomics

Email readers, continue here…] In later insights, we will explore the legal and ethical responsibilities of board members. The combination of restrictive covenants in the investor documents and the new dynamic of board members with an agenda make for a change in the culture of the corporation, certainly one for the CEO.