Last month, I said there are three sources of entrepreneurial capital: customers, investors and employees. This month, we'll look at selling to investors.
I first learned how to sell to investors in 1977, when I took a part-time job selling oil and gas tax shelters to rich people. I learned how to prospect for rich people, and in doing so, I found that not all rich people know much about investing, many don't appear to be rich, and most of the really rich are entrepreneurs themselves. This encouraged me to keep learning so I could become an entrepreneur.
Here are five steps that will help you "make the sale" when approaching investors.
1. Ask for money before you need it. For example, months before my partners and I needed capital for a gold-mining operation in China, we talked about the venture at business meetings and social events. We let prospective investors know how much we required. Then, about a month before we needed the money, we made personal phone calls to find out if the prospects were still interested.
2. Make your presentation magical. I disclosed to potential investors that the Chinese property was acquired from the Chinese government for nothing down, since the price of gold was at all-time lows. This usually sparked interest and led to more in-depth discussions.
3. Talk about the risks. When asking for money, many entrepreneurs focus on the returns and avoid the issue of risks. They talk about the upside and avoid the downside. I do the opposite. After doing my best to discourage investors, I ask if they still want to hear more. If they do, they're strong potential investors. I also feel better not hiding anything. Remember, start with the bad and end with the good.
With our Chinese investment, I was especially candid about the risks. That venture went public, and our investors did well. But I've also had to tell investors that ventures failed. In those cases, I'm happy I was forthright from the start.
4. Practice on something easy. In my opinion, a startup is the riskiest investment. Start by raising money for a less risky venture, such as real estate. If you've got a good property, you and your investors will be less likely to lose out.
5. Take the request seriously. Remember, when you ask people for money, you're asking them for something more important than money: their trust.
Robert Kiyosaki (www.richdad.com), author of the Rich Dad series of books, is an investor, entrepreneur and educator whose perspectives have changed the way people think about money and investing.