If you're like most entrepreneurs
running a growing business, you spend a substantial percentage of
your time attempting to raise money. But if you're focused on
raising money, you're probably not focused on building your
business. How badly is this affecting your company? Ask yourself
these two simple questions:
What's the true cost of lost
opportunities to your business because you were spending a
substantial amount of time raising money?
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What are your realistic chances of
success if you attempt to raise capital yourself?
The sad truth is, less than 3 percent of
all companies seeking venture funding actually receive it and less
than 10 percent of all companies seeking angel stage funding are
successful. Many times, even a business that has the merit and
deserves investment doesn't receive it. And business owners are
never told why! Is it because of an easily fixed weakness in the
value proposition? Is it because the prospective investor had a bad
experience with a similar company in the recent past? Is it because
the opportunity came to the investor "over the transom"
rather than from a trusted advisor?
Since most investors won't tell you
why they didn't fund you, what can you do to solve this problem
and raise the money your business needs to continue growing?
Finding the right expert intermediary can help you...
Understand your business through the
eyes of an investor. There's a significant difference
between having a business proposal that makes sense and presenting
a fundable value proposition. Do you know what investors are
looking for? Investors don't just look to see that you have a
good product, marketing plan, etc. Beyond these things, they look
for adequately secured intellectual property, boards of advisors
and directors who can provide meaningful assistance, strategic
partners, and a capitalization table that protects earlier
investors and provides room for subsequent funding rounds. An
expert intermediary can insure that you've done everything
possible to be attractive to an investor.
Obtain quality introductions. If
you really want to succeed, it's not enough to use
internet-based matching services or directories to identify funding
sources active in your industry. Unless you know a VC personally,
or know someone who knows one, you have just two chances of
obtaining funding: slim and none! Every VC has a large pile of
business plans sitting on the floor of their office, representing
the hopes and dreams of aspiring entrepreneurs. An expert
intermediary can and should act as a trusted referral source to
investors.
Save time and remain focused.
When entrepreneurs attempt to raise money on their own, the time
and effort required detract from the time they need to spend
building their business. The often-complex capitalization process
can span months, during which time it's vital for the business
to maintain momentum to support the highest possible valuation. How
much time do you really spend and what's the real cost of
preparing, assembling, binding, shipping and following up on
multiple business plans (sent by overnight delivery services) to
multiple funding sources who are unlikely to read them because you
can't get to the decision maker? Expert intermediaries have the
time and resources to devote to the transaction, enabling you to
focus on your primary mission--building and running your
business.
There's an old saying that "a
person who represents themselves in a court of law has a fool for a
client." Don't put yourself in the same situation when
raising capital for your business. You're the subject matter
expert at developing and running your business...not at getting it
funded! One of the most common errors made by the inexperienced
entrepreneur is to try and save money by doing it all themselves.
But when it comes to raising money, most entrepreneurs need the
advice of experts to guide them. Just be careful! When choosing an
expert, use the following checklist as a guideline for
selection:
- Make sure they have a solid track
record at helping companies get funded.
- Check to see that they use a
consistent, reliable methodology for evaluating
businesses.
- Determine how much feedback they
provide. How much help will they offer to correct identified
issues?
- Find a company that has broad-based
resources in both geography and business expertise.
Jim Casparie is the "Raising
Money" coach at Entrepreneur.com and the founder and CEO of
The Venture
Alliance, a national firm based in Irvine, California,
that's dedicated to getting companies funded. Elliot Reiff, COO
of The Venture Alliance, contributed to this article.