How to raise capital to fuel business growth
When I reference raising capital here, I’m not talking about a fledgling start-up or start-up idea. Ideas and dreams are a dime a dozen. In business and in life, most of the funding goes to the savvy entrepreneur, the proven model and the already-successful plan. We get plenty of capital-raising opportunity requests from “the next big thing,” but what truly separates those that get funded from those who do not–especially at the growth inflection stage.
In the real world of business finance, venture capital is a dirty word. Most private equity groups understand how limitations on capital make its placement in the right businesses with the right models and teams that much more important. Fewer and fewer groups are comfortable with throwing millions at a project and hoping for a massive return.
Businesses don’t run themselves. Investors know that. The right entrepreneurs with the wrong plans may be turned away by venture or angel groups, but when they come back, strike a cord, gain some traction with customers and eventually prove their worth, they typically get funded. As part of my subscription to the WSJ, I receive the Forbes magazine. A recent issue outlined some of the unique characteristics of Sequoia Capital’s entrepreneurs: most of them were foreign-born. In fact, 59% of the company’s Midas list had at least one foreign-born co-founder. Does that mean that U.S.-based entrepreneurs don’t have what it takes? Not necessarily, but some of the characteristics of foreigners and immigrants bode well for this type of work and should be considered if you’re building a must-have characteristic list of entrepreneurship for yourself. Here are some of my thoughts.
- Uncertainty and ambiguity. If you look at many of the founders in the Midas-list, many of them came from countries and families where they had to worry about
- Extreme drive. I once read a quote by Bill Gates wherein he said he’d never taken a day throughout the entire decade of his twenties. Where Bill’s drive came from, it’s hard to tell. Perhaps he saw the opportunity in what he was building. The same could likely be said of those who enter this country with the view of their past governments and countries where opportunity is far less plentiful. In other words, when opportunity strikes, it takes the right amount of drive to push far beyond what would be considered normal or average. Success and drive for a product or service cannot be outsourced.
- Scrappy attitude. No excuses and just get things done. The real successful ones can find the solutions to highly-complex problems without the help of investors (but they usually know where to go otherwise to find the answer if they don’t necessarily know themselves). The scrappers will find a work-around that works and then move on. I paid for college with a combination of direct selling and a lot of very long hard manual labor. Most of the other people I saw doing such jobs were what some would consider lowly immigrants, but they often worked harder and longer hours. They were truly scrappy.
All the best entrepreneurs are very good salespeople. If they’re not, they typically have hired some of the best salespeople in the business. It’s funny because salespeople are often not always the most technically savvy people in the room, but they know how to move products promote services and ultimately “Win Friends and Influence People.” They’re often more important for the growth success within organizations than any other factor.
Investors want to see that potential in a founder. They’ll ask about your initial clients, how you obtained them and what your intent is to acquire more. Such questions are almost always pointed to the main question, “can you sell?” Never underestimate the importance of a good salesperson on a founding team. It will make or break the top-line revenue number–which is the most important for obtaining funding from investors seeking massive hockey-stick growth.
Capital raising is a big time-suck from what should be a business’s core purpose. Jumping headlong into raising capital isn’t the best move for most businesses. First, develop at least the core underpinnings of a product. Second, get some sales traction in the marketplace and then if you still need runway, you can head out to pitch to investors. Unless you have previous successful start-up and exit experience, it’s best to save the capital raising for very last.
The truth is that today’s successful businesses, especially in technology need less than they ever have before. The cloud has helped to democratize technological tools, putting high-powered capabilities in a very inexpensive pay-per-use model down to the lowest man on the totem pole. Consequently, asking for large sums of money to simply build a website is as foolhardy as asking the United States government to do it.
So, if you’re in technology and think you want or need millions, it’s probably not going to happen. If you’re in a typical products or services business and need capital, investors will likely ask if it can be backed by something (like in the case of A/R factoring). Financiers, will always want to trade value for value–or sometimes even perceived future value based on best-guess (or best-case) assumptions. When it comes time to raise capital, first you need to ask yourself if you have what it takes in terms of skills, networks and drive. You also need to know when it’s not the capital that is the barrier to growth, but that’s fodder for a completely separate discussion.