The Four Steps to Raising Money to Fund Your Company
Too many entrepreneurs and business executives underestimate the cash required to fund a startup or company growth. Cash is the lifeblood of a business. Business anemia (a lack of cash) stunts business growth or worse, leads a business to cease operation. It dies. What are the steps to raise the appropriate capital to allow your company to maximize its valuation?
Over the past 30 years, I have met an untold number of business owners who lament their fear of losing control. They overestimate the value of their company (Have you seen Shark Tank?) Their fear and arrogance become obstacles to building a successful company and reaching their potential.
As the founder of a startup or company CEO, you'll find that raising funds is a significant component of your job. Like anything worthwhile, it requires a plan. And, like most things in business (and life), it means you cannot do it alone.
Step ONE: The Business Plan
A detailed business plan is the first step to running a successful company and/or raising capital. Imagine building a house without detailed blueprints and specs. Your business plan is more than a budget or proforma. This business plan incorporates each component of your business from its mission statement to the detail of how each department will function. It is both the WHY and HOW of your company.
Step TWO: Investor Presentation
Your business plan becomes an addendum to your Investor Presentation. This presentation starts and ends with “What’s in it for your investors.’ It includes:
Target Market Size and Growth Projections
Business model showing costs, pricing, and margins
Management team skills, experience, expertise, (and history of success)
Competitive Differentiation and/or Intellectual Property
Marketing Strategy and Sales Plan (In the realm of reality)
Financial Projections of Revenue and Expenses
Specific Size of Capital Request and Equity and Use of Funds
Risks and Exit and/or Liquidity Strategy
Step THREE: Identify Possible Investors
This is a critical step. Narrowing your options is key to an efficient process. For a seed round, you'll want to identify funds and individuals who have a track record in the market segment that you're serving. Depending on the size of your round, a good rule of thumb is to create a list of 15 to 20 funds and 25 to 50 individuals who are relevant. Research funded companies that are in your peer group to see who has invested in them previously and whether these investors have a penchant for an opportunity like yours.
Step FOUR: Selecting Your Investors
You should choose investors who have the experience of building, running, or helping startups in the past. They should have a proven record of investing in startups that have been successful in their endeavors. More than their money, their experience is vital, which makes them an invaluable advisor.
Your investor(s) should be trustworthy who can keep your company’s confidential information safe without creating problems for you by using that information that can compromise you.
The success of your business venture cannot be guaranteed as there are many potential risks that can lead to its failure despite a brilliant idea. It is vital to find investors who are willing to take calculated risks on a rational basis rather than emotional considerations
Good business investors are very supportive, helping you in problematic situations. They act as a mentor for you to help you achieve your goals by constantly coaching you and supporting you at every step. They provide time and empathy during your tough times.
Investors should be patient enough to understand that it takes time to earn profit. They should have the quality of thinking long term and visualizing the bigger picture of your company’s future. Your business angels should be calm and relaxed, and not be the ones who panic and fear to take challenges.
Keep in mind, your investors will keep you accountable. Be prepared if you do not deliver on your plan, they can exercise options to protect their investment. It is your investment, as well. Stay focused on the ultimate goal – Building a company of value. Do not fall into the percentage trap. 100% of nothing is nothing.
