One of the worst mistakes Bart Breighner believes he's made since founding Artistic Impressions, an art retailer in Lombard, Ill., nearly a decade ago, was undervaluing the stock he sold to raise early growth capital.

Breighner, the company's president, sold stock to five private investors. But as the company has grown (to $20 million in sales), that move has returned to haunt him. "I've offered several hundred thousand dollars to one investor who originally put in $45,000, but she just won't sell," he says.

Breighner concedes there's a bright side: "She doesn't hassle me, and she attends my shareholder meetings when I need her to." But he hopes to go public eventually, and he regrets having to shoulder all the business's financial risks only to have to share the ultimate rewards. "When I've had to borrow money, it's my name that's gone on the loan, not hers. I would have liked the opportunity to profit fully from the meteoric growth we've achieved."

Breighner blames himself for failing to protect his interests. Selling stock seemed like a good idea at the time (as it does for many entrepreneurs): "There were a lot of bills to be paid, I wasn't profitable yet, and I hadn't been able to persuade banks to lend us money. I was desperate. I virtually gave away 30% of my company to raise enough cash to be able to keep us in business during the early days."

However, in two years Artistic Impressions went from a loss of about $140,000 on sales of $650,000 to profitability on $3 million in sales -- a success rate that persuaded Breighner to try to get his stock back quickly. He managed to buy out three of the investors (restoring his stake to 87%) for about 150% of what they had invested two years earlier.

In hindsight, though, Breighner says he should have structured his equity sale to include a buyback feature that would have let him reacquire stock at some fixed future date or growth stage, and profit guarantees for his investors in the event of a stock buyback (perhaps comparable with the 30% rate of annual return targeted in venture-capital deals) if his company reached sales and profitability targets.

"If I'd demanded the buyback feature in our early days, I might have scared off some potential investors," Breighner says. "But the flip side of that is, once you've given away your stock, it's very tough to get it back."

Owners sometimes sell company stock too cheaply because they don't recognize the range of financing options available for raising start-up and early-growth capital. A new 177-page book, The Money Connection: Where and How to Apply for Business Loans and Venture Capital, by Lawrence Flanagan (Oasis Press, 800-228-2275, $24.95), offers some good suggestions, including valuable lists of state resources.

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