Although raising capital is a challenging task, you can increase your chances of success if you follow these guidelines.
Create a Real Business
If you want other people’s money, show them that you’ll build a business. Don’t do it for the money.
Do it to make meaning. To make a real difference. To make the world a better place.
Get Introduced by a Credible Party
The process for raising capital isn’t always fair. But you can tilt the playing field in your direction by getting introduced
to a decision maker. The following people can introduce you to those decision makers who’ll take a serious look at your company.
Current Investors
If someone’s already investing in your business, they’re a great resource to help you find more investors. Potential investors are at least willing to listen to recommendations from current investors. So don’t hesitate to ask.
Accountants and Lawyers
When hiring these people, find someone who can not only do the work, but someone who can also introduce you to other sources of capital.
Other Businesspeople
An entrepreneur who reaches out to her current investors saying, “This is a great company. You should talk to them,” can do wonders for you.
Check out the investor’s website to see which companies he’s investing in. You may already know someone at one of them.
Demonstrate Momentum
Investors usually look for three things: a proven team, proven technology, and proven sales. But out of all these, the most important is sales.
Why?
Sales demonstrate that people are willing to take money out of their wallets and put them into yours.
But if your product or service isn’t finished yet, field testing is the next best way to build momentum.
Prove a Clean Record
Many investors are actually looking for a reason NOT to invest in your company. Issues in these common areas will increase the chances of your company not getting funded.
- Intellectual Property: Is there potential for lawsuits by former employers who claim that your technology belongs to them?
- Capital Structure: Do you and a few founders own the majority of the company? Are you unwilling to spread out the ownership?
- Stock Offerings: Do you grant stock – as opposed to options – to vendors in lieu of payment?
Acknowledge Your Competition
Don’t think that investors want to hear that you have no competition. If you say this, they’ll conclude that there’s no competition because there’s no market for your product.
If there truly was a market, others would be trying to win it.
So do your homework and find your competition. Then show how you’re better than them. Filling out the table below will help.
| Company | What we can do, and they can't | What we can't do, and they can |
|---|---|---|
| You | ||
| Competitor 1 | ||
| Competitor 2 |
It’s important to list the things that you can’t do and your competition can. This builds your credibility, showing that you’re willing to present facts that don’t make you look good.
If you truly don’t have competition, think broadly until you can define some. Competition can be as simple as the status quo, or researchers at universities.
You can still use the table above to demonstrate the relevance of your product by showing how your capabilities meet the needs of your customers.
Be Prepared for Difficult Questions
Investors will ask these questions to try and reveal your lack of wisdom. Here are three likely questions, along with how you should answer them.
- What makes you think you’re qualified to run this company? Tell them you’ve done okay thus far in getting your company up to its current level. But be humble enough to step aside if necessary.
- Do you think you’ll remain as the CEO over the long-term? Tell them you’ll do whatever it takes to make the company successful – again including stepping aside if needed. Offer milestones at which you can make this transition.
- Is control of the company of great importance to you? Understand that to be successful, you’ll need great employees and investors who want a stake in your company. Don’t think about keeping a big piece of the pie. Focus on making the entire pie bigger.
Persist
Some investors will say no. But if you truly believe in the meaning you’re making, don’t take no for an answer. There’s still a chance.
Have you found big customers or met milestones early? Did other high-quality investors provide you with funding?
If the answer is yes, and you provide this update after your first pitch, you can still win them over.
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