Raising capital for a new venture can be tough for entrepreneurs, especially when they want to focus on the nuts and bolts of building their businesses. Yet, finding funding to support a startup business is an essential part of the new business-building process, but it’s not always fast or easy.
Besides the general discomfort of turning up hat in hand to friends, family and acquaintances, you will be treated to a rough quizzing, forced to tell your story over and over. And often getting rejected. Though painful, this process can actually be useful. After meeting with a few potential investors, you will become more confident in some details of your business plan and make improvements to others.
Beyond questions directly related to your knowledge of the business, an investor also needs to know that you have the drive, perseverance, ethics, grit and character to generate a return on capital. So expect a lot of personal questions as well as business related probing.
Related: The Basics of Pitching Investors
Savvy investors will dig deep into your business plan. For example, they may want to know that you have identified your primary market and your secondary market and that the two markets will be approached differently. They might be interested in your projected revenue per employee or how will you handle an economic downturn or a new competitor. Overall, an investor wants to know if you intend on allocating resources in a manner that generates the highest return.
Once you have all the fundamentals The Money Raising Marathon of your business plan and know it inside and out, you now need to find these investors.
Begin by creating an investor database and list every contact that may have interest in your project. Next separate the database into three categories: most likely, worth a try and unlikely. Continue to fill in the database throughout the process as introductions and referrals are likely. Generally speaking, you will have greater success raising money from someone who:
- You know rather than someone you don’t.
- Has had success in a project that you have been part of (even if your part was small)
- Does not work in your targeted industry. An investor who has achieved financial success in the industry may not think he needs you.
- Uses similar products.
- Is geographically close to you, this is especially true in the early days.
- Has previously made high-risk investments. (Don’t spend too much time courting an investor with an extensive bond portfolio.)
Perhaps the most difficult aspect of fundraising is it is very time consuming. If you are attempting to raise money for your first business, you may still have a full-time job, which makes it very difficult to focus time and energy on this crucial stage of creating a new company. Entrepreneurs must be realistic about the time investment required at this stage in the game.
Plus, raising capital can also be expensive. Travel and other expenses will add up. You will essentially have to treat raising capital as a separate business activity and plan in advance.
If you are ready to take on the challenge of forming a new business, get ready for a tough challenge. The good news is that if you succeed in raising capital, you will have refined your business plan and perhaps learned something about your own strengths and weaknesses. Raising money is a lot like running a marathon. It takes training, time, and a lot of determination.