What credentials do you need to raise money from private investors or top venture capital funds? It's a popular question and, indeed, a good one.
Here's the good news: You don't need an MBA from a prestigious university, all the best industry contacts or a Fortune 1000 work history. Successful fundraisers don't have to live in one of the epicenters of entrepreneurial activity, such as San Francisco, Seattle, Boston or Austin, Texas. And entrepreneurs don't have to represent any presumed stereotype of business ownership. Ambitious men and women of any race can raise money for their business even during the most stubborn of recessions.
So why is it that so many entrepreneurs and business owners complain that they can't raise startup or business-expansion funding? My view is they probably haven't tried very hard. That's right. Raising money is a function of putting your best foot forward, over and over again.
Think about it this way. Big objectives demand big efforts. If, for example, you wanted to run a marathon, you would expect to train several hours a day for many months to reach the goal. The same is true for startup and small-business fundraising, yet too many business owners throw up the white flag after only one or two rejections. Fundraising for even the most buzz-worthy new technology companies can take nine months to a year of diligent solicitation work to match business plans with check-writing investors.
Are you willing to reach out to at least five new targeted investors every single day until you get the money you need to build your business? I hope so, because persistence is the first credential of success in venture funding.
Effective fundraisers also believe that there is value in every phone call, e-mail or board room presentation even if the effort doesn't yield a big check for business-building purposes. A connection has been made. That person now knows about your company's purpose. It's up to you to make the most of it.
What other actions, attitudes and accomplishments matter to private investors and venture capital fund managers? Here's my short list of credentials:
Master the numbers. While a business degree is not required for entrepreneurial achievement, a strong working knowledge of accounting is valuable for day-to-day business management as well as pitching lenders and investors for money. Business owners have to be able to estimate exactly how much money they will need to reach higher points of sales generation and profitability. If you can't hold a detailed conversation with potential investors about the variables of your company's cash flow and profitability, then take one or two evening accounting classes.
Advance your communication skills. What often separates one struggling startup entrepreneur from a more successful one is the ability to sell a company's potential. If proposal letters are riddled by grammatical errors or lack focus, potential partners can assume the founder has sloppy work habits. To boost your communication skills, consider taking an improvisational speaking or acting class, Dale Carnegie course or sales training class. When public speaking and fundraising pitches are perceived as welcomed opportunities rather than dreaded chores, then you know you don't need more class work.
Exude patience. All potential investors have the right to ask questions about how their money will be used to start or expand a business. After all, it is their money. Give potential investors the time to learn about your industry and plans for growth. Don't create any arbitrary deadlines for investors to give you a "final answer." As long as your company needs more money, keep communicating.
Don't oversell corporate experience. Working in a large corporation is not necessarily the best training ground for future entrepreneurs. Managing a startup or growth-oriented company involves different managerial skills than serving in larger companies where there are ample administrative, personnel and capital resources. Smart investors know this, too. If you're new to bootstrapping, surround yourself with other partners and advisors who have previously succeeded in a capital-starved operation.
Network. Effective fundraisers draw upon an ever-growing ecosystem of lawyers, accountants, advisors, marketing strategists, investment bankers and other professionals who are active in the "venture-building community" to get personal introductions to potential investors. Entrepreneurs can also save some time by talking with other entrepreneurs who have been successful in raising funds from angel investors or venture capital funds.
What's the easiest way to start your network for future fundraising purposes? Start local. Read online or print news for reports of funding for local businesses. If you don't have a business accountant to prepare your company's tax returns, it's time to find one. Interview several candidates. Ask if the firm represents other businesses that have raised money from angel or venture capital investors. You can follow the same interview process with local or regional law firms, too; however, accountants are less likely to charge fees for first meetings. Of course, don't reach out to accountants during tax season if you want to get some quality time!
Develop practical resilience. Not all contacts can be generous with their time at the moment you ask for it. This goes for requests for funding or referrals. That's OK. But do make the most out of every communication by asking at least one of the following three questions:
- "When should I contact you again?"
- "You have a lot of experience in this area, so what should I do to improve my business for fundraising purposes?"
- "Who [venture capital funds or angel investors] might be a good funding fit for my company?"
I'm frequently asked by entrepreneurs who have previously managed failed business operations if it's a waste of time to try to raise money for a new venture. Provided entrepreneurs present their career histories with full accountability and don't blame others for a failed enterprise, investors will keep an open mind. Suffering a little business adversity tends to build character and a practical aversion to wishful thinking. This is the mindset that investors want at the helm of their portfolio companies.
Remember, success in fundraising is more about what you do today and tomorrow, rather than what you did yesterday. You can raise all the money you need for your business. The time to start is right now.
© 2010 Business on Main
Susan Schreter is a 20-year veteran of the venture finance community and a university educator in entrepreneurship. She is the founder of TakeCommand, a community service organization that offers the largest centralized database of venture capital funds, angel investment clubs, incubators and microfinance lenders in the U.S. Ask her your questions at firstname.lastname@example.org.