How to Make Capital Chase You (vs. You Chasing Capital)
Silicon Valley, February 1, 2016
Most business owners that seek capital go about it the wrong way, while often looking in the wrong places, and then take the wrong approach when they pitch. As someone who has worked with over 200 CEOs and small business owners in 25 countries, this is a is a widespread pattern that can easily be overcome. When you look in the right places, and pitch the right investors, and deliver the right pitch, you stand about a 3000% higher chance of securing funding.
Friends & Family – The WRONG Place to Look for Money
(Doesn’t apply to you? Skip to the next section…)
Many owners start with friends and family, mainly because they are easiest to reach, and more likely to invest due to their emotional connection with you – It’s hard to say “no” when someone you care about asks. After all, who wants to be the squashier of your dreams?
But raising money from friends and family has some significant risks that can devastate both the business and the relationship(s).
You’ve heard all about the high statistical odds of start ups failing according to the SBA and others. Yes, yes I know…YOUR business CAN’T fail, because you can see the future so clearly, and you have NO emotional attachment to the business, and which allows you to detect ALL the problems and risks ahead, and easily avoid, overcome or navigate around them. (I hope you detected the sarcasm here.)
Even if all that were true, by asking friends and families to invest, you are asking them to take a historically statistical high risk, without a full and comprehensive understanding of your business and model, knowledge of the industry or the various risks.
Make Friends & Family Your LAST Resort, NOT Your First
You owe it to your friends and family to exhaust every other avenue first.
And when you do, following the guidance below, you likely will never need to approach friends and family.
In the unlikely event you do need them, the best way to raise money from friends and family, is to ENSURE they are investing with money they CAN afford to lose. And if they lose it, they TELL YOU there will be NO hard feelings or negative impact on your relationship. This must be discussed openly.
And even if they say “ok” to this, if you lose their money, despite what they say, or what you think, it will affect the relationship, it’s just a question of how much. Making mother mortgage her house to fund your dream, or having your brother empty out his 401k, should be the LAST resort, not the first.
Your Crystal Ball Isn’t as Clear as You Think…
When Murphy GRABS & SMASHES It to Pieces
Look, let’s assume you identify and mitigate every risk within your control, (which is near impossible even for “pro” business owners). There is still a myriad of potentially business-killing landmines ahead that are completely out of your control. The business graveyard is littered with company corpses that were destined for great success, then the unthinkable happened. Something NO ONE anticipated, (but probably should have). This is why it’s called “unthinkable”, and if you think that YOU are immune to unthinkable things that are out of your control, then you probably have no business taking their money, or perhaps even being in business. Telling investor’s things like “no risk”, “sure thing”, or “can’t lose”, is reckless and flat out untrue. Be a paranoid optimist, and acknowledge that risks and potential problems exist, and constantly be on the look out for them.
Furthermore, friends and family are usually not seasoned professionals at assessing a business, and pricing the risk relative to their investment. You get them excited, and they hand you money because they believe in YOU. This is the lazy, corner cutting way to get money, and incurs a high risk to everyone. The only thing WORSE than not getting funding or losing your business, is first taking a bunch of money, burning it all up, then having that happen.
The Smart Alternative – Get “Wise Money” for Your Business
If your business or idea is so worthy of funding, then someone in the VC or angel investing world will recognize it, and fund you. You don’t need to convince everybody, you just need to convince somebody. So it’s really a numbers game. The more investors you pitch, the better your odds. It should be just a matter of time.
However, the time it takes could feel like an eternity if you go about it the “traditional” way, which is to find and approach investors one at a time, pitch them, get a “no” and repeat this process many times until you get a “yes”.
This is a highly inefficient process involving WAY too much time and effort. Instead, when you can get a bunch of investors in a room, and pitch them all at the same time, several powerful things happen:
- You save significant time, money and effort travelling and pitching investors one at a time.
- You increase your odds, since there are more investors hearing your pitch.
- You may a better offer or deal, if the investors start competing with each other to fund you, just like often happens on the hit TV show Shark Tank®.
The other issue is finding the investors. I could write a whole article on how to search, find, research and foster relationships with investors one at a time, but it’s no longer necessary in 2016, because now you can meet a group of investors all in one place, and pitch them all at one time.
Go HERE to Get the Money You Need
The Business Funding Symposium 2016, brings a group of VCs, angel investors, and business lenders all into one venue for 2 full days, and allows you to pitch them at length, allowing time for plenty of questions, discussion and negotiation.
You also get value help preparing your pitch, which is quite helpful when the investors who want to fund you are helping you pitch them, so they don’t miss out on a good opportunity because of a not-so-good pitch.
Of course, you could go pay a middleman thousands of dollars to shop your business or idea for you, with no promise of anything. Or, you can pursue the new smarter, not harder way to raise capital, and invest 2 days at $0 cost in yourself and your business, by attending BFS 2016.