I received an email from Saheed, a student entrepreneur in Maryland. He asked about sources of capital for his new business venture. Here is a summary of Saheed’s question and my thoughts:
Hello Mike,
My question is how does one go about raising finances besides raising it from friends and family. What are the steps to attracting individuals from companies and other private individuals (setting up meetings, emailing, calling, and what comes after)
Thank You.
Mike’s Answer:
The reason it is “easier” to raise money from friends and family is the fact that they know you and they care about you. Who knows you better than your Mom, Dad or your good old Uncle? But even if they’d like to help, they may not have the money. Worst case, they do have the money but your business tanks. That will make the family get-togethers a little uncomfortable to say the least! Other times, they may be in a financial position to invest, but they lack faith in your idea.
This is when you may want to turn to outside investors. Just like your family, outside investors need to have faith in your success and care about your business. You need to be able to connect with these people on both levels. Here is what to look for:
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They Must Have The Faith - Only a fool bets on something that they think won’t work out. As you go out on your quest for financing, seek people that already understand the business you are in. If they understand what they are getting into, they will be more likely to make a bet on you.
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They Gotta Care About It - Some people invest simply to invest. Other’s invest to invest AND to support their beliefs. Pursue the latter type, they will be more likely to make a bet on you.
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Been There and Done That - There is no better person to invest in your company than someone that has already done what you plan to do, or at least they have done something similar. In addition to providing you with the dough you need to start, they may have a powerful network, helpful experience and other invaluable resources.
Now that you know who to call, don’t just pick up the phone and blindly start dialing. Look at it from your own perspective. Imagine your phone rings and someone you have never heard of is on the other end of the call. They ask you for hundreds of thousands of dollars. You would probably hang up, or at least have a million questions about who they are. Blindly calling upon an investor will get the same response. The best results are achieved when you are introduced to a potential investor by someone that already knows what you are capable of and can speak to your abilities and commitment. How do you find these people? Just start telling everyone you know that you are looking to raise funds, and why. You never know which conversation will open the door to someone that can help.
If you still can’t find anyone that can refer you in, start networking. Go to the events that the angels and venture firms go to. Hang out with people, get to know them, and tell them about your goals and passion. It all boils down to some good old fashion face time and trust. Best of luck!
