What does it take to successfully raise capital? Here are five key hurdles investors will expect you to be well prepared to address. Failure to comply will usually disqualify you from further consideration.
- Your opportunity must fill a significant need in a large niche in the marketplace.
- This opportunity should be suitably documented and presented (packaged). If you don’t have a solid business idea and present your opportunity in a professional, focused, and credible way, your chances of getting funded are very low.
- Investors are unlikely to capitalize your business if they don’t like you or believe you can deliver solid results. Your ability to relate well to others and your personal credibility are critical elements of the capital raising process. In other words, investors invest in founders rather than in products and services.
- Most investors want to see strong management. If you don’t have a strong management team yet, a credible approach for building one needs to be developed.
- The deal must be attractive and make sense to investors within certain well established guidelines.
Many early-stage company founders are not well prepared to address these issues with investors. As a result, many never get past the first step. They may get words of encouragement or a lukewarm response from investors, but receive little or no funding. If you have tried to raise investment capital but have not been successful, the chances are good that the primary reasons are found in the five issues summarized above.
So what can you do about it?
- You can read lots of books and articles about how to raise money from angel investors and do everything on your own. Some of what you read will be very helpful. Much will be repetitive. Virtually none of it will tell you exactly what to do in your specific situation. You will be on your own to figure out how to adapt the information to fit your business, which is the weak link of this approach. How will you know if you are doing the right things in the right ways at the right times, especially if you don’t have experience in the entire process?
- You can get someone with lots of experience to prepare the needed tools and do everything for you on spec (no money now, but the promise of money in the future after funding is raised), or in exchange for a piece of the business. This is a great idea that rarely works. People who successfully help businesses raise investment capital have paying clients. They see dozens or even hundreds of opportunities on a regular basis, and have little time for pro bono work. If someone has the time to invest weeks or months of effort to work on a business with a slim chance of getting paid, they are probably not very experienced in the process of raising investment capital. This option is included here because many entrepreneurs think it’s the best way. It usually does not work because the people you get often turn out to be the wrong people.
- You can combine your best efforts with expert assistance as needed to give you the best possible chance of success. In this case, you will spend the time and effort needed on your part, and invest in the necessary expertise to package the business and prepare you for the capital raising process. Then, you will be integrally involved in every subsequent capital raising activity and meeting. Even after all this, there is no guarantee you will raise a nickel for your business. However, you will significantly increase your ability to succeed if you combine efforts in this manner. A team approach can make a huge difference, if it’s the right team.
The third option represents the highest likelihood of success for most early-stage companies. It requires a solid personal commitment to the business and the process of raising capital to support its growth, and often the prudent allocation of seed capital to engage the necessary expert assistance.
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