14 May The Fundamentals of Raising Capital
Remember when you were young and you would see a candy bar in the store that looked so good. And you wanted to your parents to buy it for you but they would not, they said, “you have to earn your money then you can spend it however you want.” Raising the capital to buy a business is nothing like that. Raising capital to buy a business is more like when you and your sibling, or perhaps a friend, would decide that you wanted a bag of candy so you would all earn one or two dollars and then pitch in the funds together to make the purchase.
There are many people, some of them may still be your family or friends, that have some additional capital but they don’t know how or where to invest. If you are working with a small start up that needs some additional capital, or are looking to raise some capital to buy a business that is for sale, one place that you might start looking is to your friends and family who has the small amounts of capital you may need.
Getting Professional Investors
Many people do not have the direct connections with people who have the amount of capital they are looking for, or the connections they have are directed with a fear to invest mentality. In these circumstances you may need to turn to an angel network or VC/PE type funding. I actually highly recommend joining with this type of funding at some point, even if your family does invest. Simply having an investor how is highly skilled and professional in the area of business will help significantly when you need advise in moving forward.
Dealing with the Big Boys
Raising capital with a Venture Capital firm or raising capital with a private equity group as well as angel investors can be very difficult. These types of investors are always being hit up with business plans of people who are looking for investors. Most of the time they only look at the people who came in through a connection of theirs. So, the best place to start looking for such investors is through connections you have. If your network does not include these connections, then do something about that. They say that there is not a single person in this world that is more than six connections between you. In other words, you can get in contact with them if you try. And in today’s social media heavy society it is not hard to expand your network through LinkedIn and Facebook. So do your networking.
Once you are about to meet an investor make sure you know your stuff. They are going to ask you hard and difficult questions that you need to know and be prepared to answer concisely and precisely. You have to sound intelligent. Know your elevator pitch, know the detailed pitch, and if there are any areas of the business that is hazy in your mind, then clear them up. Learn it; understand it. Remember that 80% of VC funding is focused on the management team; the other 20% is in the product or service. So if you have a good idea, but you seam wishy-washy they will walk away from the deal.