The Money Trap

In June, a former client was able to close a deal that represents an important milestone for any company in today's business environment. The first check from an outside investor was finally in hand, in the bank, and available for use.

When it arrived, the company's employees let out a collective sigh of relief that this stage in the process was finally over. I did, too. With that check, my former client — a start-up biomedical company — became my employer.

The relief was fully tangible, just as the tension of the previous months had been. That tension was caused by a need for money that was beyond the means of our company's founder. This need for money distracted us from fully focusing on our ultimate goal — bringing a product to the marketplace that meets the customers' expectations for price, performance and quality.

Our biomedical company is developing products based on existing medical systems previously developed in Russia. Our company is in the angel investment stage of seeking and receiving money; that's the stage before the infusion of venture capital.

While going public or selling stock is the usual way for companies to generate cash, our company is not yet ready for that. The amount of money we need is not enough, and the perceived risk by the investment community would be too high for that route to be successful for us.

Still, this is a major hurdle that virtually every start-up company has to face — getting money from outside sources. Until now, outside investors were not convinced that our product and business model had the ability to realize a profit, once properly funded and implemented.

We are still nine months from selling any products and there is much to do. But, as the company's chief engineer, our investor's financial support means that I will finally get the technical and administrative support I desperately need to meet the schedules.

This does not mean that life here will be any easier. In some ways, the challenges are greater because the expectations for our little group have been raised both internally and externally. We must work harder and smarter than we did before the investors were here. Schedules can no longer slip. Others have expectations about our success.

In a free market economy, money is both the lubricant and fuel that makes things happen. When properly applied, amazing things can be done.

Having the money to do the job correctly is very much a chicken-and-egg situation. What comes first? Getting the money necessary to bring a salable product to market, or demonstrating in advance that there is really enough of a market to make the product profitable?

Without a real product, it is impossible to actually demonstrate that a market exists for your product. No matter how good your product might be, without sufficient funding you will be unable to build that product and deliver it to the market.

It's easy for investors to say no. "No" is the safe position. There will always be another investment opportunity. So, to get them to provide you with money, you have to get them to believe in your dream as strongly, if not more strongly, than you do.

Our little group has our first external believer. Now, it is up to us to demonstrate that this belief is not unfounded. We must make good on the promises we have made and produce the results we know that we can. Wish us good luck.

— Niel Leon
Committee on Engineering
Entrepreneurship
leonn@asme.org

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