Starting a Business

Friends With Money

Network your way to potential investors.
Magazine Contributor
2 min read

This story appears in the August 2009 issue of Entrepreneur. Subscribe »

Raising money is not always fun. It often requires dealing with rejection and remaining optimistic as you pitch your business to skeptical investors. But the act of networking your way to potential investors can actually be enjoyable if executed well.

Getting introduced by the right person in the right manner really matters when you're raising money. A strong introduction is a prerequisite if you're raising money from institutional investors, such as VC firms, which rarely invest in entrepreneurs who have pitched them on a cold call. For angel investors and others, a strong introduction will maximize your chances of getting a fair hearing in your first meeting, and improve your chances of getting the all-important second meeting.

During today's constrained capital market, it takes considerably more time to network your way to the right person in the right manner. Fewer investors have interest in generating new deal flow, so networking to a genuine prospect is harder. If you're not careful, you could take too much time to raise capital relative to the value of doing so.

While raising money, I recommend that you keep track of your labor-adjusted net capital. This is the amount of money you raise adjusted for the market value of the time you spent raising it. If you spent 100 hours trying to get introduced to an investor who ends up investing $50,000, your labor-adjusted net capital is $50,000 minus the amount you could have made if you spent the 100 hours selling your product or building your company in other ways.

Time is a valuable resource during the startup stage. It's easy to lose track of it while raising money because entrepreneurs often commit to a certain fundraising goal and then chase it regardless of how long it takes. For example, it makes no sense to tell investors that you're committed to raising a large round of capital if it takes several months to get introduced to the people who can make the investments.
Pick an achievable fundraising goal. Focus on getting introduced by the right people, in the right manner. This will help you make rapid progress in raising money for your business.

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