Raising Capital in Rural America
Seattle, Austin, Silicon Valley, Boston, Chicago and increasingly New York City are epicenters for seed and early-stage angel and venture capital investment.
But what about entrepreneurs who live outside of these metropolitan areas? What strategies can they use to network their way to investors who'll support their entrepreneurial initiatives?
Whether or not you live in Obion or Oshkosh, the starting point for raising capital as a young company is simply having the determination to do it. A company's location is less important to funding decisions than the economic feasibility of the company's business plan and the practical opportunity for investors to earn at least 20 percent to 40 percent return on invested capital. Entrepreneurs also have to present themselves as mature, constructive leaders who appreciate the added responsibilities associated with managing other people's money.
Here are five of my go-to tips for fundraising that I talk about in coaching sessions with entrepreneurs around the country.
1. Ask the right questions. Effective networking can speed up the fundraising process for entrepreneurs running companies at any stage of business development. The problem is that first-time entrepreneurs really don't know how to do it well. In their enthusiasm to get fast funding, they start out by asking the top conversation killer, which is, "Who do you know who can invest in my business?" It's like telling people the punch line before the setup.
Networking is all about engaging, listening and sharing information. Give your audience a reason to care about you and your company's progress before asking for big favors. Invite your audience to brainstorm with you as a member of your ever-growing circle of mentors and advisors, people who enjoy the process of being a part of something that has purpose for a regional business community.
Some better questions to ask include these: "Who do you think I should talk to who can help me learn more about the fundraising process?" "Do you know any businesses or entrepreneurs in our state that have received investment capital recently? I'd love to meet the executives or board members for tips." "Do you know any law firms or accounting firms that specialize in serving growth-oriented companies?"
When businesspeople meet entrepreneurs who are poised to do great things in the marketplace, they share contacts for fundraising purposes or open their own checkbooks.
2. Start with angels. Wealthy individuals with high annual incomes and a $1 million-plus net worth (excluding the value of primary real estate) represent ideal candidates for making an "angel" investment in a startup or early-stage company.
According to Phoenix Marketing International, nearly every state saw an increase in its total number of millionaires in 2011. Which states have the greatest percentage of millionaires? Smaller states like Maryland, Hawaii, New Jersey, Connecticut, Alaska, Virginia and New Hampshire. Nationally, the number of millionaire households rose by 6.8 percent in 2011 to 5.94 million. One fast way to connect to wealthy individuals is through angel investment clubs that are located within 300 miles of your hometown. You can cross state lines, too.
3. Understand when to go regional versus national. Seed and early-stage angel investors are most inclined to put their dollars to work in regional companies. Why? Because investors will have to spend less time and money traveling to a "portfolio" company for board meetings and other meetings with management. There are exceptions to this rule. Startup companies in highly specialized fields such as life sciences or clean technology can find seed and early-stage venture capital funds that will consider opportunities from anywhere in the country.
4. Network to state leaders. All politicians care about job growth within their state and the perception that they're supportive of small-business owners. If your business has the potential to put people to work or develop groundbreaking technologies, start communicating with state representatives. This tip works!
Think about it. Politicians know wealthy people to support their re-election campaigns, and they're always in touch with top state business executives who constantly lobby state officials on upcoming legislation. Plus, retired politicians love to serve on corporate boards. Start with your local mayor and network upward. Get to know the leadership of your state's top Chamber of Commerce officials, too.
5. Explore microloans. Not all startup businesses require equity capital as a first source of outside capital. Sometimes a small loan, which can grow over time, can provide young companies with enough working capital to develop a product prototype, which in turn may qualify the company for equity funding. The good news is that now every state has at least one microlending resource.
Despite all the media attention to online crowdfunding resources, I still favor local and regional initiatives for seed and early-stage funding. People who live around you are going to care more about your success, and they may end up being your company's first customers, too.