I have personally been through the process of raising investment, so I am proof positive that it is possible for an inventor and entrepreneur to raise cash, even in today's economic climate. But I've also learned first-hand there are many issues to be aware of that tend to be neglected. In fact, I want to share a few insights that took me somewhat by surprise, or at least in varying degrees of surprise along the way--the main one being the amount of time and complexity associated with finding and accepting money from investors.
If you are like me, when you first thought about getting money from an investor, you thought, "if I had X dollars, I could get my product/company to Y. So, I need to find an investor, share this vision, and voila! We will both become wealthy."
Before you take that leap, though, there are some things you need to realize, in terms both of time and money.
- Raising capital is nearly a full-time pursuit. Finding investors, preparing presentations, delivering presentations, listening to feedback on presentation (often contradictory to the feedback from the prior investor), improving the presentation (it always gets better over time and with feedback), communicating with investors, then juggling and revising the paperwork.
- If you have children, you need to consider child-care. I flew in the grandparents from one state to babysit while I jetted off to another state to give a presentation. I would estimate that raising my first $500,000 consumed at least twice the amount of time than I spent writing my first two books!
- You'll need expert advice. There were terms I had never heard, coming at me like darts: capitalization, preferred shares, common shares, warrants, preferences, valuation, dilution, convertible notes.and many others.
- Hire a lawyer, and prepare to pay hefty legal fees. Raising investment capital requires adherence to various securities and trade laws with documentation and filings that must meet stringent legal standards. It is imperative to have a qualified business attorney handle these matters. Over the course of the past few years as I have raised investment capital I have paid various attorney's fees ranging from $275 to $650 per hour! It doesn't take a math degree to realize that one could spend a sizable portion of investment dollars paying someone to organize the necessary paperwork to close the investment deal.
- Don't underestimate the emotional toll. Getting yourself mentally psyched for each presentation requires energy and the belief it will be worth the effort--in spite of the fact that investors hear dozens of pitches every week and only a handful of companies win investments each year. While most investors are polite and even generous with their time--expect "no" or some variation of "no" to be the answer you will hear most often.
After all this, one might assume I would categorically advise against seeking professional investment. This is not the case. Launching and growing a business is not always easy. Depending on your goals, investment capital may be essential to accomplish your goals.
As I said before, I have navigated this process, understood enough of the terminology to get through it, and successfully raised investment myself. I have no doubt that others can do so as well. However, once you have concluded that your business has the kind of upside potential that might interest a professional investor, be aware of the consequences you'll encounter trying to raise this kind of capital.