Tap Into Your Network for Business Funding

Planning Your Approach

You may have heard of the "elevator pitch"--a scripted sales pitch entrepreneurs use when they have a potential investor cornered and only a couple of minutes to make a lasting impression.

Your friends, family and others probably don't want to hear you give a slick sales pitch, but they do want to hear a straightforward account of your plans. In contrast to the anonymous, aggressive elevator pitch, your approach should be warm and informal.

You'll do best by planning the actual investment request in advance. Here's what works:

1. Decide whether it's better to bring your request up in casual conversation or at an informal meeting. If your prospect is someone you see regularly, bringing up your request in casual conversation is probably the right choice. Let it come up when the conversation turns to you and your work. Instead of directly asking the listener for money, phrase it more generally, saying you need to raise some money for your business and you're trying to figure out how to do it.

If you're asking for money from someone you don't see every day, or for whom a more businesslike setting seems appropriate, you're better off scheduling an actual meeting. Tell the person you would like to get his or her input on your business idea, then set up a meeting. Don't deceive your prospect about the meeting's purpose, but also don't make the meeting sound like a sales pitch before it even starts. Show genuine excitement at sharing your business idea and hearing the other person's thoughts.

2. Pick a setting suited to your relationship. The closer your relationship with your prospect, the more informal the setting should be; the more distant the relationship, the more formal the setting--for example, at the person's office, a restaurant or an upscale coffeehouse.

3. Bring a few illustrative materials. Your casual conversation is not the time to bring along notebooks full of business plans and promissory notes. Still, you should show prospects something tangible to explain your business, such as a brochure, sample product, website or newspaper article. Photos of your product or planned site are particularly good, since visuals attract attention. If you plan to open a bakery, bring sample cookies. Even something as simple as a printout of a color logo can give others a more tangible sense of your business.

Making the Pitch
These basic principles will give you your best shot at pitching potential investors:

1. Start with your business idea. After some small talk, describe the product or service and why you think it will sell, using any materials you've brought along. List several specific business goals you have for the upcoming months, such as trade shows you'll attend, sales goals you plan to achieve and new product versions you'll design. Explain why you think it's the right place and the right time to launch your business--and why you're the right person to do it.

Ask your prospective lender some genuine questions for ideas on making your plan work. The more you leave room for give-and-take, the greater the chances your prospect will be willing to participate.

2. Ease into the loan request. Many fundraising advisors suggest you be direct in making your request for a loan. With family and friends, it's actually more effective to be comparatively indirect. You may be eager to just blurt out your question, but hold off until the question seems to arise naturally. In some cases, you may need only to start talking about what you want to do before your prospect starts volunteering to help make it happen.

If you need to make your request more explicitly, do so with a "soft ask." After talking about your business, you might say, "I need to raise about X dollars to get started, and I thought you might be interested in participating."

If the person looks at all uncertain, acknowledge any tensions with a comment like "No pressure, of course." Next, explain: "I thought it might appeal to you, since I know you started your own web design business a few years ago," or "I thought of you because I know you have a background in business." Don't be apologetic--your manner should continue to show your confidence that you've offered your prospect a reasonable investment opportunity.

3. Keep any agreement verbal. Think of your kitchen table pitch as merely the opening to a longer conversation. Your goal for the moment is for your prospective lender to say yes to the idea of a loan--not to sign on the dotted line. It's best to leave this initial conversation open-ended.

If you get a yes, explain that you'll send a letter detailing the loan terms and next steps. If your lender is so gung-ho that he or she can't resist asking a few more questions, reply in general terms. If, for example, your prospect wants to talk about exactly how much you need to borrow, offer a range, such as "between $10,000 and $30,000." If he or she asks about repayment, simply describe how and when you'll pay the money back.

Once your prospect has heard enough to agree to the idea of an investment, wrap up your pitch conversation. Explain the next steps--you'll send your business plan and loan request letter, and then you two can hammer out the details.

I specifically advise against giving the lender a copy of your loan request letter or business plan during this initial conversation. Preserve the informality of the meeting by sticking with purely verbal discussions and agreements.

Suppose the conversation hasn't gone well, and your prospect is uncomfortable or unwilling to agree to a loan. If possible, don't let him or her actually say the word no. Say something like, "I can tell you're not comfortable with this yet--can I contact you again in six months to show you my progress?" Very few people make their financial decisions quickly, and entrepreneurs often receive a lukewarm reception long before they get an eventual "yes."

Asheesh Advani is CEO of Covestor, an online marketplace for investors. He founded CircleLending, which was acquired by Virgin.

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This article was originally published in the August 2006 print edition of Entrepreneur with the headline: Friends With Money.

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