Capital raising is by far, the most important skill that any entrepreneur needs to master.
We all know that the lifeblood of any business is … the money.
If your business is just an idea, that has the potential to take off and become a runaway success, then you’ll need money to get to market and make sure that everyone knows about your business.
If your business has just started, and you are doing something right, you’ll need more money than you have on hand, in order to grow.
Either way, you’ll need to master fundraising, an incredibly important part of building and growing, a successful business.
Often people want to raise money because they think it’s cool or easier, to be a venture-backed startup.
It’s not. You’re selling a portion of your company.
You shouldn’t do it unless you absolutely need additional capital to bring your vision to a reality.
It has never been less expensive to have an idea, build an MVP (minimum viable product), and test it to see if it has traction.
However, by exploring all potential sources of capital, you may find that pitching an investor might be the best way to fund your idea.
The most important thing to investors, especially the ones that invest capital into partnerships and joint ventures, is whether or not they can trust you to deliver on what you say.
Before you start to reaching out to investors and partners for capital raising, there are 4 key factors you need to consider:
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Investors and lenders need to easily understand what you’re asking them to give money for. Keep it simple, concise and real.
You might find interesting preparing the following questions:
- What is the project that the lender or investor is providing you capital for?
- If it’s your business, then what exactly is your business?
- What makes your business unique from others in your industry?
- The advantage of your business that will build the investor’s confidence?
- What will make it successful?
Provide the names of the people working on your project along with their experience and track record. You want to make the investor feel comfortable and confident in working with your team.
It’s not rocket science. It’s common business sense.
Questions that need to be answered:
- Who are the key partners behind the project?
- Who is putting the deal together?
- What experience do the partners have?
- What is their track record?
This is obviously a bit trickier for a startup company because most of the revenue numbers will be projected numbers, not actual numbers.
Therefore, it is absolutely necessary to show the investor, as precisely as possible, how the project, whether a business or an investment, will make money.
Be realistic. Don’t advance the best-case scenario.
It is more important for the investor to see the most realistic numbers, including the problems and roadblocks ahead.
Every business and investment project has problems. Pretending that yours won’t makes you look like an amateur.
Questions that you’ll have to answer:
- How much money are you raising in total?
- Where is the money coming from?
- What are the terms?
- How are you going to use the money being raised?
- What are the funds being allocated to?
- How soon until I get my initial investment back?
- What is the return on my money?
Despite the saying, “Money follows management”, you will build a much stronger case when you address all four components, not just management.
Potential investors want to know everything possible about your management team, how these individuals will run daily operations and deal with problems.
You’ll have to be prepared for the following questions:
- What is the experience level of the management team?
- Who are they?
- What are their backgrounds?
- What makes them vital to the success of this project or business?
Provide backgrounds and expertise. Make investors confident in the people managing your investment.
This is key to the ongoing success of any venture.
Moreover, if you want to be sure that people pay attention to you, wrap your idea in a story.
The story provides the bliss point, the moment your audience fall in love. Even hardened investors are enamored of story.
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Neuroscientists who study first impressions say we really do form impressions about a speaker very quickly, in as little as 5 to 15 seconds. So, we have to hook the investor’s attention, within the first 15 seconds.
Also, if you care about being thought credible and intelligent, do not use a complex language where simpler language will do.
In general, people seem to like 10-minute pitches. Within these 10 minutes, you must clearly explain why you’re making the product, what problem it solves, and why the investor should want to join the journey.
If you fail to get to the point in the first 10 minutes, your listener’s mind begins to wander.
As a final thought, remember that raising capital for your business is not a sign of failure. It is a sign of success.
When your business needs more money than you have on hand, in order to grow, then you are doing something right.
So, are you ready to put your capital raising skill to the test?