If you're like most entrepreneurs running a growing business, you spend a substantial percentage of your time attempting to raise money. But if you're focused on raising money, you're probably not focused on building your business. How badly is this affecting your company? Ask yourself these two simple questions:
What's the true cost of lost opportunities to your business because you were spending a substantial amount of time raising money?
What are your realistic chances of success if you attempt to raise capital yourself?
The sad truth is, less than 3 percent of all companies seeking venture funding actually receive it and less than 10 percent of all companies seeking angel stage funding are successful. Many times, even a business that has the merit and deserves investment doesn't receive it. And business owners are never told why! Is it because of an easily fixed weakness in the value proposition? Is it because the prospective investor had a bad experience with a similar company in the recent past? Is it because the opportunity came to the investor "over the transom" rather than from a trusted advisor?
Since most investors won't tell you why they didn't fund you, what can you do to solve this problem and raise the money your business needs to continue growing? Finding the right expert intermediary can help you...
Understand your business through the eyes of an investor. There's a significant difference between having a business proposal that makes sense and presenting a fundable value proposition. Do you know what investors are looking for? Investors don't just look to see that you have a good product, marketing plan, etc. Beyond these things, they look for adequately secured intellectual property, boards of advisors and directors who can provide meaningful assistance, strategic partners, and a capitalization table that protects earlier investors and provides room for subsequent funding rounds. An expert intermediary can insure that you've done everything possible to be attractive to an investor.
Obtain quality introductions. If you really want to succeed, it's not enough to use internet-based matching services or directories to identify funding sources active in your industry. Unless you know a VC personally, or know someone who knows one, you have just two chances of obtaining funding: slim and none! Every VC has a large pile of business plans sitting on the floor of their office, representing the hopes and dreams of aspiring entrepreneurs. An expert intermediary can and should act as a trusted referral source to investors.
Save time and remain focused. When entrepreneurs attempt to raise money on their own, the time and effort required detract from the time they need to spend building their business. The often-complex capitalization process can span months, during which time it's vital for the business to maintain momentum to support the highest possible valuation. How much time do you really spend and what's the real cost of preparing, assembling, binding, shipping and following up on multiple business plans (sent by overnight delivery services) to multiple funding sources who are unlikely to read them because you can't get to the decision maker? Expert intermediaries have the time and resources to devote to the transaction, enabling you to focus on your primary mission--building and running your business.
There's an old saying that "a person who represents themselves in a court of law has a fool for a client." Don't put yourself in the same situation when raising capital for your business. You're the subject matter expert at developing and running your business...not at getting it funded! One of the most common errors made by the inexperienced entrepreneur is to try and save money by doing it all themselves. But when it comes to raising money, most entrepreneurs need the advice of experts to guide them. Just be careful! When choosing an expert, use the following checklist as a guideline for selection:
- Make sure they have a solid track record at helping companies get funded.
- Check to see that they use a consistent, reliable methodology for evaluating businesses.
- Determine how much feedback they provide. How much help will they offer to correct identified issues?
- Find a company that has broad-based resources in both geography and business expertise.
Jim Casparie is the "Raising Money" coach at Entrepreneur.com and the founder and CEO of The Venture Alliance, a national firm based in Irvine, California, that's dedicated to getting companies funded. Elliot Reiff, COO of The Venture Alliance, contributed to this article.