November 10, 2010
I’ve raised a lot of money for a broad-range of companies and industries over the years. And, one question that pops-up generationally is how to mitigate risk for investors.
Below is a real exchange between one of my Accelerator Element principals and myself. We have been successful recently in closing a round of $4mm through an Exec-with-Check (amazing in this economy, I know), and the question finds us again:
From: [mail: name protected]
Sent: Wednesday, November 10, 2010 2:21 PM
To: Brian Patrick Cork
What do companies do about the $100K limit of FDIC for deposited funds? Do they spread the money around to multiple banks? We will likely have $750K by the end of the month and hopefully the balance of the $4M by the end of the year (possibly middle of 1st Quarter).
The money is simply always at risk.
This also applies to money in savings accounts at big banks.
All of it is relative.
But, the risk is low percentage unless the vehicle is, well, risky. Banks are low risk, while ventures like DSI are deemed high risk. NOTE: The odds are your DSI is classified as high risk on the” risk pyramid (such a measurement actually exists)”, and the money will be lost.
Any effort to spread the money across multiple accounts will be compromised by cost associated with the time to manage it, and the associated fees.
One way to assuage the fear of an investor, and in this case, a new principal, would be to implement key-man insurance. Otherwise, the FDIC measure aside, there exists no other form of insurance or protection outside of best practices, great strategy, and good luck.