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Raising Money For Your Business or Project

Money being exchanged with a handshake

When I started my first few businesses I had no money.

When I started my fourth business I did and in case you haven’t had both experiences it’s 1000 times better to start a business with money than without.

Sometimes though you don’t have money of your own and you need to raise some money for your business or project.

Heck sometimes even when you do have money of your own you need to raise extra.

We devote a whole section and several lessons in our Scale ROI training to raising capital, determining what types of capital to raise when, working through common challenges, etc. but for now here’s a basic overview for you of how to raise money for your business or project if you don’t have it.

Lesson #1 – Raising Capital is Marketing

People sometimes paint raising capital as something special and it definitely has it’s own language terms like:

  • Debt vs equity
  • Security
  • Term sheets
  • Cap tables
  • Valuations pre-money and post
  • Etc.

The difference is you’re selling a part of your company (shares/equity) or a rate of return (debt). In some rare more modern cases you’ll crowdsource or do an ICO or something similar but most capital raising comes from debt or equity and if you’re talking about a very small company it’s almost always equity because debt is considered too risky.

Lesson #2 – Your Offer is EVERYTHING

There’s always smart money for smart deals.

A lot of people are either poor entrepreneurs with poor/non-existent reputations or have poor offers and then wonder why they are having a hard time raising money.

The best way to start making raising money easier is to work on yourself as an expert entrepreneur, build your reputation and improve the quality of your offer.

What is your offer?

It’s what you’re giving the investor or the perception of what you’re giving the investor.

If you’re talking about debt this is usually fairly simple you’ve got credit, you’ve got an asset, you’ve got cashflow, you’ve got security and you’ve got offered rate of return. You can improve the quality of the offer by improving any of these things.

If you’re raising debt then it’s about coming up with a better company, demonstrating better how it’s a no brainer success opportunity for the investor, offers higher ROI and you’ve giving them a bigger share.

Think about it do you want to invest in something pretty much sure to succeed or very risky? The former of course so come up with a plan with a very high chance of success think through everything that could go wrong and find ways to work around those.

Go a step further by demonstrating you know what you’re talking about and can actually execute, usually this is achieved by bringing on team members with a track record.

Would you rather invest in something that could be the next Facebook or best case will be the next local sandwich shop? The former of course so what’s the upside of your business? Paint a vision for what it will become but ground it in reality and immediate actions.

Where possible show traction and how it’s already picking up, signs of early success sell better than anything else.

Would you rather own 1% of the next big thing or 10% of the next big thing? The later of course. Now, obviously, you don’t want to give up too much this is like discounting your product but it will factor into whether people want to invest with you or not.

Lower valuation and higher percentage or better terms will both help you raising the money.

Bottom line if you make a really compelling offer everything else becomes 10x easier.

This should answer the question “What’s in it for them?”

Lesson #3 – Create a List of Possible People to Provide Capital

Getting investors is fairly straight forward in some respects. You need a list of people who have money (it doesn’t necessarily have to be a lot though you need to be mindful of capital raising rules wherever you’re raising money as the process is usually fairly regulated) who fit your criteria.

You can often start with your basic social circle here as well as asking around and/or looking for local angel investor groups.

You start by simply making a list of everyone you can think of or every capital raising hub you can think of.

To expand this list you ask those people and others you know who they know who might be looking for a business to invest in. Very often the people who are looking for investments know others who are looking for investments.

Ideally, those people can give you an intro.

Key Richucation tip here – many people have only one or two people on the list. You won’t close them all so it helps to have a lot of people you can talk to as it increases your chances of success and doesn’t make you as vulnerable to offers from any given person or group.

Final Richucation tip here – start building relationships with these people before you are ready to raise the capital. Keep them updated as you hit key milestones to build their excitement and interest in your project sharing the wins. By doing this when you call asking for money they are far more likely to jump in.

Lesson #4 – Communicating with Possible Investors

Knock off any intimation you might have about capital raising terminology it’s perfectly normal for new entrepreneurs and start-up founders not to understand the fancy investing lingo ask them to explain it to you instead.

Your focus should be on three things:

  1. Your company
  2. How you’re going to deliver results
  3. Understanding the hot buttons of your target investor

Understand each investor has slightly different preferences but they are all looking to invest money to get a return.

Some might say they only invest in real estate or tech or biotech or whatever that’s fine they aren’t your target ask if they know someone who might be a fit and stay in touch, learn what you can from them and treat them well.

You don’t know who they know there’s an expression “a dud can bring you a stud”. Maybe a little crass but true.

The most important point here is don’t get right into pitching your business instead take time to listen and hear what’s important to them then learn to pitch your business or project in the most attractive terms possible.

In a sense this is basic sales.

Entrepreneurs often fall in love with their company or vision but what’s in it for the investor?

What does the investor care about. You probably think your idea is amazing and the truth is it’s probably full of holes, it helps to identify those now rather than later but also don’t get discouraged.

You’ll probably get rejected a bunch of times, that’s normal learn from each pitch and learn to refine it accordingly. You don’t need to be articulate or charismatic to get the results look at the Google Founders or Mark Zuckerburg when they started, nerds!

Realize sometimes a no today just means you need to refine your offer, your pitch, your story more. Failure is feedback, take it and improve then come back once you’ve improved your offer.

Chances are they’ve also got more business experience than you so use this as a free education on things to consider and improve.

This being said don’t take everything they say to heart, opinions are like assholes everyone’s got one and they all stink. Focus on listening to the market more than the investors.

Pay more attention to what the investors say about HOW TO EXECUTE than what your product or service or business should look like that’s where they’ll have more useful and more universal experience.

If they have an objection try asking them how they’d suggest handling it.

Request permission to stay in touch and provide them with updates as you grow they can become valuable advocates.

Lesson #5 – Be Ready to Take the Money

Know what you’re asking for, what you’re giving in return and if they are ready to invest be ready to take the check.

They might require a particular corporate structure or some changes to your structure, it’s best to consult an expert on this it could be perfectly reasonable or could be a way for you to get screwed.

This is also where having multiple offers helps because you can compare them to each other.

Be aware one of the biggest questions almost everyone will ask and you need to be able to answer is “what do you need the money for/how will you use the money?” We call this “use of funds”.

You should have thought through what the money is going to be used for.

You should have thought through how much it will cost and not be asking for substantially more but probably a little more to offer a cushion because your estimates will probably be low.

The amount you’re asking for should usually be enough to bring you to your next major milestone.

Ideally find someone or a group who can provide you more capital if needed there’s nothing worse than running out of money shortly before reaching that next milestone.

What’s Next?

This is just a start your best advantage is going to be learning and there are 3 things to learn:

  1. How to be an amazing entrepreneur and build an incredible business – this will help raising capital more than anything else. This is something we can help with through our products and services if you’re interested check out our Advisory or Products section of the website.
  2. The Language and process of raising capital – this is a pretty quick study honestly, you can read a bunch in online articles, learn from the investors you talk to, as mentioned we cover it a lot in our Scale ROI training.
  3. Marketing in general – this will make your business more successful but will also help with finding great investors and pitching and comes back to point #1

Keep iterating and improving your business, your story, your pitch, your method of finding investors, and you’ll be in good shape.

This is a journey of continual improvement where the fastest learners win.

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