So you are a new start-up that is trying to raise capital? Are you prepared to accept capital? Most entrepreneurs are not ready to accept capital. You are asking to take on a considerable responsibility when adding other owners to your business. If you cannot answer these questions then you need to back up and do more research before pursuing investors for your business.
- Do you have a business plan completed? Are you giving out the executive summary when you approach a certain investor?
- Are you selling stock? if so, do you have a subscription agreement?
- What does the investor get for their money?
If you have been able to answer the questions above, then here is the advice I can offer for raising capital. I know that it works as I have raised substantial capital for my own businesses in tough environments. It is not easy to do and it really depends on your to make it happen. You will be told no quite often so be prepared for rejection and never accept no if you truly believe in what you do.
New businesses do not attract "Venture Capital". Don't waist time pitching VC funds. The Investors in the funds will almost always take your business plan and drill you and then not return a call. They love to absorb your information, but will only play ball when they can make a fairly safe investment. That is after you have been in business for a while, proven your projections and developed a seasoned team. Then they will want to take as much of your business as they can.
There is an exception to getting Venture Capital for a business with no record and/or even a business that has not started. You would have to have an insider with proven successes in other businesses in the same industry and they would most likely have to invest their own money as part of the deal. I am assuming since you are looking here that you do not have that situation. If you did, your seasoned partner would already have gone to his contacts.
That means that you need to look at Business Incubators that may have seed fund contacts in your area. You can locate business incubators by contacting your local Chamber. Your Chamber may even have an incubator that it sponsors. You could also look towards economic development commissions.
Angel investors are going to be your best source for raising capital. Now, most people will say go to friends, family and so on to see if they will help you raise capital, but I will tell you that I believe that this is the worst place to look. You need your friends and family to support your business efforts without strings attached. Don't add financial strain to the relationship. Besides, friends and family can be the hardest people to sell your idea.
It is far better to begin networking in the business community at social events. Get to as many as you can such as Chamber events, networking clubs and more. Talk to your accountant and ask them what social functions would be good to attend. Ask friends in the banking industry. Doctors and other successful business owners are typically strong candidates for making angel investments. Find out where they are and be there.
Never "pitch" your business yourself but get others to "pitch" it for you. It is far better to have others talk you up. Just share the excitement of your business but don't "sell" your business to them. That will turn a potential investor off fast. You want your investor to share your excitement and ask if they can invest in what you are doing.
Remember that this process takes a lot more time than you will expect. You need to know your business inside and out. You must be able to have an answer for every question and be able to get one if you don't. Also realize that it does not matter if you know you are right, rather it matters if your investor believes you are right and you can deliver.
I hope that this advice helps even one new entrepreneur.
About edentre: K Taylor is seasoned entrepreneur with over two dozen business starts to date. He has raised millions of capital from both institutions and angel investors. He has had his business appear INC magazines fastest growing companies and won regional growth awards. He has successfully negotiated contracts with leaders in billion dollar organizations. You can learn more about entrepreneurial businesses at his website and blog www.edentrepreneur.com
