There are a number of myths about financing a company, and these myths live in the hearts and minds of most entrepreneurs. If you're like most entrepreneurs, the issue of outside financing will eventually go beyond "rational analysis" and become an extremely emotional issue for you, because money goes hand in hand with two issues that are fundamental to your desire to be an entrepreneur: control and freedom.

The more money an entrepreneur raises for his company, the more control he usually has to relinquish. Suddenly a new element is introduced to the startup enterprise: accountability to someone other than the entrepreneur (who is usually also the CEO). And most CEO's of small companies are not used to being accountable - they are used to being the "highest authority" in the company.

The myths in this chapter come partially from the emotional depths of the entrepreneur and how he/she feels about raising money for the company. They also arise from "conventional wisdom" regarding Venture Capitalists (sometimes referred to as "vulture capitalists") and other investors. It's especially important to understand what makes Venture Capitalists and other investors tick and what goals they strive for in arriving at a strategy of how to best to raise money from them.

This chapter will help you understand common mistakes and misperceptions regarding the process of raising outside financing. Each myth exposed in this chapter will include a detailed analysis of the underlying issues, resulting in a set of principles that can help you make the best of the financing process.

The myths that we'll look at in this chapter revolve around several core issues: How to raise financing, how to stay off the Endless Wheel of Financing, including the value of a bootstrapped company vs. a financed company, and the real reason why most entrepreneurs lose control of their companies.

In myth # 1, I don't need to raise financing for my company, we will explore why start-up companies need (or don't need) to raise outside financing. Central to this issue is the question of whether it's possible today to start and grow a business without ANY outside financing. Within this context, we will formulate a set of questions that will help you determine whether you should consider raising money to finance your company.

In myth #2, Venture Capitalists invest if they like the idea; we turn our attention to both myths and realities surrounding investors. Why do VC's invest in particular start-up companies and not others? Is it because of the idea? Is it because the potential market for the product is extremely large? Or will they only invest if there is an experienced management team? In this myth, you will learn what makes a company attractive to investors, and you will receive a set of principles that will help you make your company more attractive.

In myth #3, If only I had more money, I could grow more rapidly; we look at the nature of growing a small start-up company, distinguishing between needing financing to survive vs. needing financing to invest. By digesting this myth, you will understand why many small companies come to think they need to raise outside financing, and you will also understand the effect more money has on the company. In this myth, we will introduce an important concept that is often misunderstood or ignored by many entrepreneurs: the Endless Wheel of Financing.

The principles introduced in this myth will help you understand how to intelligently use (or rather, 'spend') the money that you've worked so hard to raise. By doing this, you can be sure you'll never be caught in the Endless Wheel, and you will have the knowledge you need to succeed at running a solid, well-managed, profitable company.

In myth #4, Target a few investors, we tackle the problem of how to actually go about raising financing, as we will de-mystify this tricky process. If handled correctly, the process can proceed very smoothly. If handled incorrectly, you may be a very disappointed entrepreneur, backed up against a wall, with no choice but to accept whatever financing you can get. More specifically, we introduce the concept of a "financing campaign" and walk through the best way to handle your "campaign."

In Myth #5, Take the Highest Valuation You Can, we examine how most entrepreneurs negotiate a financing deal. The goal of most entrepreneurs in negotiating equity financing is to give up as little of the company as possible. Putting a high valuation on the company does this.

For example, if you are raising $1 million and the company is valued at $2 million, then you will have to sell half of your company for the $1 million. However, if your company is valued $10 million, then you will only have to sell 10% of your company to raise the $1 million.

But you will see that attempting to get the highest valuation is not necessarily the best thing to do. In fact, it often ends up costing entrepreneurs MORE of the company in the long run! In this myth, you will learn how NOT to negotiate an outside financing deal.