For most of my career I’ve sat on both sides of the table. On one side, I’ve worked as an entrepreneur raising capital from outside investors. On the other side, I’ve worked as an investor, putting my capital hard at work in other people’s businesses. What this experience has done is given me a unique perspective and behind the scenes view of what it really takes to start and fund a business in this market.
If you’re considering raising capital for a new venture, here are a few things to keep in mind:
1. Don’t wait, get started. Many entrepreneurs I know fail to get started. They fail, because they believe they need to have everything in place before jumping in. But the most successful people I know don’t wait. Instead, they know the difference between having resources, and being resourceful. They have learned how to identify what they need and accumulate those things every step of the way.
2. Bootstrap as long as you can. Many entrepreneurs underestimate how long it will take to raise money. Estimate that each round will take 6-12 months to close. The problem is you want to get started today. So, how do you keep your business moving forward while raising capital? The answer is to bootstrap. Bootstrapping can be a great benefit to your capital raising effort. It enables you to start developing your product, proof of concept, while demonstrating to investors you are the type of person that executes. How do you do it? Write down all of the things your business needs to keep moving forward? Decide what is your currency, what can you offer in trade to other entrepreneurs to help them continue moving their businesses forward? Finally, identify your trading partners and go strike a deal!
3. Create your ideal investor profile. Every day I meet entrepreneurs that have a great idea, solid plan, excellent team, they are executing like crazy, but are constantly having their deal rejected by investors. The most common reason is they spend all their time talking to the wrong people. So, the first step to creating a successful capital raise is to create a perfect “avatar” or representation of your company’s target investor. How do you do it? Consider these things: What is your target investor’s background? What type of deals do they typically invest in? What stage company do they focus on? What is the average amount of capital they put into each deal? What is their expectation for return on investment and timing?
4. Have basic materials in place. To get started, you will need a One Page Business Overview that touches on the company’s mission, market, target customer, problem being solved, the company’s solution, the competitive environment and what makes you different, how you will distribute and market the product, revenue and expense summary, capital requirement and return on investment, key milestones and timelines, and a key manager summary. Now, most people’s initial reaction is “I need more space!” My answer is this, “If you don’t understand your business well enough to fit it all on one page, neither will anyone else.” In addition to your One Page Plan, you will need a One Page Financial Overview. Finally, if you are asked to go present to an investor, prepare a PowerPoint presentation that is no more than 10 slides. In a one-hour meeting, plan to give your presentation in no more than 20 minutes and spend the rest of the time answering questions and gathering feedback.
5. Use the “Drip System” to build momentum and move your target investor through the decision making cycle. Most entrepreneurs think giving investors everything they have at one time gets the deal done and that more is better. The average investor is talking to lots of hungry entrepreneurs and the paper piles up. Which can be completely overwhelming. Reality is too much is like nothing at all because it gets thrown in the trash. Instead, drip information in bite size, easy to digest chunks, so your deal doesn’t get bogged down. Start with one sentence (your elevator pitch). Then follow up with one paragraph (giving just a bit more), next a one-page summary. You get the idea. Then tailor each follow up communication based on feedback. Provide one-page summaries that specifically address your investor’s concerns. Attack them one at a time. That way you will build momentum to drive toward a successful close.
Remember life doesn’t wait, LAUNCH! ™