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Like any startup, it operated in a large empty loft space in Lower Manhattan. It had the hallmarks of a startup — young, enthusiastic team, many angles to reach its sales. The founder also expected everyone to take a large cut in average pay with stock options to come which he awarded only a fraction as promised.

The company claimed to implement a proprietary telecom technology and be the first in the marketplace. The founder also advertised to be a visionary entrepreneur. Those 2 years as counsel told me so much about the startup world and how financing works. And has made me circumspect and suspicious of any startup financial claim.

Within 2 months, I discovered that the company had other competitors nationwide in same space. The founder had questionable expertise in telecom. He attracted other investors from his birthplace, Argentina, to invest in office real estate in New York. Of course, New York real estate is never a bad investment. So, how did he fail? But even that avenue seemed to be not enough cash for this entrepreneur. As my office was next to his, I would overhear his telephonic conversations attempting to sell Florida real estate. He never seemed to be discussing the day to day operations of the telecom company.

Just his other strategies to reach his net worth for millions. Soon after real estate venture beginnings, he joined forces with a medical researcher with a putative cure for AIDs. Although NIH, under Dr.

Learn my not-so-secret four-step plan for raising capital

The in-law was critical in selling his shares to third parties whenever a notable investor closed. That loan was paid back after being funded by a couple of investors within a year. Yet, the company burnt through so much cash that the company needed constant monthly funding during my tenure. There were times that the company could not cover salaries the next month. Even adding more to the cash burning, he had the company pay for his 2 nannies as salaried employees. Under IRS rules, that would be treated as income to the founder.

And, he bragged about not paying federal income taxes as he considered himself to be a citizen of the world, not of the U. To own any substantive equity in a registered, telecom company, the majority shareholder must be a U. Another substantive cash flow problem stemmed from the product pricing. The company burnt so much cash that it was profiled in Fortune magazine, as a symptom of too much froth in investments. Opinions expressed by Entrepreneur contributors are their own.

Using Other People's Money (OPM) For Investing In Options? [Episode 517]

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IESE Insight - Other People’s Money: The Fight for Control of The New England Wire & Cable Company

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Entrepreneur members get access to exclusive offers, events and more. Login with Facebook Login with Google. Don't have an account? Sign Up. First Name. Last Name. Confirm Email. Confirm Password. Yes, I want to receive the Entrepreneur newsletter. When trying to gauge your progress it can be useful to measure progress in three month and two year blocks.

You should be able to see how you will add value and grow your business over the next three months.

When you look back you can measure how this played out. Noticeable progress in terms of AUM and revenue growth should be measured over a two year period. This is where you should see significant improvement. It is important to have realistic expectations in terms of how long it will take to build a sustainable business. It is also important to know when things are not progressing. This could be a sign that you need to adjust your strategy.

If you look back over the last two years and nothing has improved this is a bad sign and requires action. If you run out of ideas for growing your business over the next three months then this also calls for a re-think. The early stages of your business are the most vulnerable and creating a robust business model from the start will insulate you. This means generating as many different income streams as possible and having a strategy to cover all of your costs. Generating an income and covering your running costs through these years will give you a great chance of long term success.

The Truth About Managing Other People’s Money

Another common killer of new managers is when they take on too many unnecessary costs too early in their career. You might dream of starting your own hedge fund but unless you have enough AUM the costs of that will be too high. It is probably more efficient to use a managed account or even trade copying structure instead.


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This can be spun off into a fund as your AUM grows. Before you take on any additional costs always assess thoroughly whether it is absolutely necessary and affordable. Another issue to pay attention to is that of working with the wrong investors. You might think that any investment is good. The worst type of client is the wannabe trader that cannot trade themselves but knows enough to question your every move. The wrong investor can be distracting and negative. This can disrupt your trading performance and lead to negative periods. Too much of this can cause other investors to leave.

The final pitfall that stops new managers ever growing their business is their own attitude in itself. Believing in your track record is simply not enough. You must view the entire thing as a business and grow every element. If you are not taking steps every week to grow your business then it is highly likely that you will struggle to sustain it. Building an asset management business from scratch is extremely competitive and littered with obstacles. Do not be lured into thinking that you can hook yourself up to an online platform and launch your own hedge fund.

The process for building an asset management business is far more convoluted and requires a lot more hard work than that. You need to grow your own trading account. This is where you re-invest all of your incomes through the early years. You then need to build a credible business structure. This includes being regulated and having a professional looking brand.