Raising money seems like the perfect solution to get your big idea off of the ground – but how and when do you go about raising the capital you need?
It’s not always quite as easy as you might think. Read on to learn about the process of raising money through venture capitalists, angel investors, crowdfunding, friends and family and also bootstrapping.
When Should You Raise Money?
The first thing that you need to consider is that often, venture capitalist and even angel investors will not invest in purely an idea. They have so many opportunities and pitches on a daily basis in many cases, that they are looking for someone with a well-established track record and a business that has more than just an idea.
First, you have to look at it from their perspective. Would you invest a bunch of money into an idea, from an entrepreneur with no proven track record of business success in that field? This is not to deter you; you certainly can raise money for purely an idea but it will be a bigger challenge, and personal connections will greatly help here.
Timing is extremely important. You don’t always want to raise money before you have even started your business.
Many times you can bootstrap your business, which essentially means putting in sweat equity, elbow grease and doing the work yourself (and with friends), so you don’t need tons of capital. Then you can ask friends and family for a loan or financing before you go to more institutional investors who are inevitably going to want a bigger piece of the pie.
Not all businesses can be bootstrapped, and we don’t all have rich uncles who can invest for minimal equity or return – therefore, I’m going to share with you some of my best tips for finding traditional VCs and angels. But before that, I want to talk about crowdfunding.
How to Get Funding and Keep All Your Equity
Crowdfunding is one of the only ways to raise money while keeping all equity and not owing anyone interest.
Kickstarter and Indiegogo and great examples of ways to raise money without lowering your equity. Another great benefit is that you can drum up significant free press for your product/business while also raising money and gaining customers and pre-orders.
The “downside” of crowdfunding is that you have to have something new and exciting, innovative and news-worthy to get attention on the platforms. The other potentially more severe downside is that people will see your idea before your create your product, and this may scare many people with great ideas that don’t exist yet.
Getting Ready to Find Funding Through VCs or Angels
Before you even think about approaching VCs and Angels, you need to start networking. You should be networking far before needing funding. If you wait until the last minute, you are going to look desperate – and if you look desperate, they are going to ask for more equity or just not give you a deal.
They can smell desperation a mile away. Someone with a great idea, that believes in that idea or business knows that it will work out in time, and they aren’t desperate. You have to keep some of the power to negotiate properly.
A venture capital and angel investor are two very different things.
For simplicity sake, venture capitalists (Sequoia Capital, Benchmark Capital) are looking for new and emerging markets, high growth markets and are going to be investing large amounts of cash for big equity. VCs are usually looking to provide funding for growth instead of an idea.
Whereas an angel investor, is usually an individual (usually behind an LLC/company) or a group of individuals. Angels are usually more likely to provide initial funding, and this is where personal networking and connections really help.
Asking for Money – 5 Dos and Dont’s
- Have a solid pitch deck
- Network like crazy, earlier the better
- Have solid financial projections, based on fact
- Know your competition, every business has competitors
- Ask friends for introductions
- Cold call/email with a lousy pitch
- Send rude emails if you don’t hear back
- Beg for funding
- Harass people online or offline
- Make financial decisions out of desperation
This post should set you off on the right foot for starting your funding raising journey. If you have any questions feel free to ask in the comments below.
Brian is an Inc. 500 Entrepreneur, who built the 25th fastest growth marketing and advertising agency in America. Brian is an advisor to many startups and mentor to many entrepreneurs. He is a columnist at the world’s top publications. Brian is the Founder of Influencive and the Founder at BDE Ventures.