To Fully Disclose or Not to Fully Disclose. How Much Should You Share With Your Investor(s)?

capital corp merchant banking complaints series full disclosureWe will be revisiting our Complaints Series for the next articles.  As always, we want to help our readers understand funding better and what goes into financing a project.  So today we talk about, well, what is said and what is not said.

People come to us and other investors every day to talk about their projects and the funding that they need to make those projects come to life. They’ll talk about the time they’ve put into their project, they talk about how much money they’ll make once they get their funding, they talk about the returns for the investors, they talk about their families too.  Developing a good relationship between a project developer and investor is important – it breeds trust.  And trust is a crucial part of turning a project from a blueprint into a reality.

But trust cannot come if the project developer does not disclose any and all information that is asked for by the investors.  Hiding problems from your investor(s) is not a good strategy.  Their job is to find out everything there is to know about not just the project but who they are dealing with – no one wants to gamble on a person deemed too great a risk.

But (and there is a but) if the project developer is honest about his/her successes and failures, personal finances, and their company’s finances, then at least they can build trust with their investors.

Sure, sometimes that still means that they won’t get funded because they may still be deemed too big of a risk.  But people sometimes underestimate investors.  An investor may see that the company is in debt but the deal is still so good that the investor will want ‘work in’ a debt restructure of the company so that it can go forward with the deal.

Problems with personal finances can also be overcome for the sake of going forward with a great deal.

Sometimes project developers will still want to go ahead with a project and omit certain ‘key’ parts… and sometimes investors will all of a sudden pull out of a deal without barely giving a reason for doing so.

The point here is not to frighten off anyone.  But we mention this because in our experience at Capital Corp, we have worked with people whom we found out through our own research were not giving us full disclosure.  How, then, to proceed? Ultimately, this bred insecurity with the people we worked with and prevented some deals (and sometimes really great deals) from being successfully closed.  Not that the deals weren’t great, not that the people we worked with weren’t in the end good – but how to trust someone who does not trust you?

We just want to let it be known that the best strategy in developing a project is to disclose all that the investor(s) ask for. If explanations are necessary, then make your case.  Most of the time, investors will be understanding and may even ultimately give you an extra help in correcting whatever it is that they can help with for the sake of making a good project see the light of day.

As always, please make an informed decision in all cases,

 

All the best,

The Capital Corp Team

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