The Overfunding Payoff
In many cases, the success of a company rests on the amount of growth capital vs. the cost of the growth capital. Many owners get hung up on how much they are paying in terms of equity give up or interest rates when they raise capital. The key is to see the investor in a win-win context. If you do not see the new investment as dramatically expanding your capital resources and enabling you to do things previously unthinkable, then the deal may not make sense.
Overfunding your company allows you to have a cash safety reserve to ride out bad times and the ability to opportunistically acquire at the best prices. Private equity investors have annual return requirements of between 25 to 35% per annum. If you can use their money to more than double the size of your company and your equity value, then this is a great way to go. Private equity investors like to partner with companies. You can use their cash to fund all of those small and large areas of growth in your company that may have been neglected. In times like these, overfunding is an insurance policy on the future as well as a passport to building value.
