In my experience working with business owners and entrepreneurs, those who had the greatest success at raising equity capital practiced these five strategies. So, whether you are trying to raise $20,000 from friends and family or $5 million from a venture capital firm, follow these tips.
#1: Understand Business Cash Flow Completely. Not only must the business executive have a strong grasp of the marketing and operational aspects of their company, but they must also fully understand how their company generates cash flow, i.e., how the company actually makes money. Investors want to know with certainty that the company leaders can take the capital invested and turn that into solid revenues. Understanding pricing strategies, fixed and variable expenses, margins, account receivables aging, administrative costs, taxation and depreciation is paramount to being able to communicate how cash is generated in a company.
#2: Prepare an Accurate Funding Request. A concise investment offering spells out exactly how much money is being requested and how the funds will be used. Providing this information as a synopsis in the executive summary is key, but also having a detailed breakdown of the funding request and use of proceeds helps investors to quickly analyze the project but also to evaluate the complete details if they have interest. Forecasts with specific revenue projections and cost estimates are crucial and are best developed when based on factual information from the company’s historical financials.
#3: Execute Professional Presentation Skills. Polished, prepared, and professional presentations to investor prospects will yield higher success rates than pitching the project on the fly. One of the key aspects to a stellar presentation is brevity. Investors are seeing hundreds of project ideas to fund a single one, so a presentation that is compelling and to the point, presented with enthusiasm, is a must in order to stand out in the crowd. If the company executives are not prepared to present the proposal in a polished succinct manner, then either invest in coaching or public speaking lesson, or hire business executives that have the skills to do so.
#4: Target Only the Right Investor Audience. Before preparing an investment offering, thoroughly research who might be the prospective investors. Pre-qualifying the investors to make certain that only appropriate funding sources are being pitched will help streamline the process and save precious time. Determine the investor’s track record for funding companies and projects such as yours. Find out what stage of funding they provide (proof of concept, pre-production, scale-up, etc.) Each investor likely has a geographical region and market sector that they prefer. Narrow down the list of prospective investors before the investment offering is distributed so that only the right investors receive the prospectus.
#5: Be Realistic About the Time it Takes to Get Funding. Realistically, it will likely take as much as 1000 man-hours spread over several months for the capital-raising process. This time will be spent perfecting a business plan and investment offering, developing a targeted list of prospective investors, contacting the list and pitching the project, and finally, negotiating the deal. In some cases, business owners have identified nearly 200 prospective qualified investors, presented the project to 50 of those, to potentially get offers from 5 investors who received the full-blown presentation. It’s easy to see how the time spent can add up.
#1: Understand Business Cash Flow Completely. Not only must the business executive have a strong grasp of the marketing and operational aspects of their company, but they must also fully understand how their company generates cash flow, i.e., how the company actually makes money. Investors want to know with certainty that the company leaders can take the capital invested and turn that into solid revenues. Understanding pricing strategies, fixed and variable expenses, margins, account receivables aging, administrative costs, taxation and depreciation is paramount to being able to communicate how cash is generated in a company.
#2: Prepare an Accurate Funding Request. A concise investment offering spells out exactly how much money is being requested and how the funds will be used. Providing this information as a synopsis in the executive summary is key, but also having a detailed breakdown of the funding request and use of proceeds helps investors to quickly analyze the project but also to evaluate the complete details if they have interest. Forecasts with specific revenue projections and cost estimates are crucial and are best developed when based on factual information from the company’s historical financials.
#3: Execute Professional Presentation Skills. Polished, prepared, and professional presentations to investor prospects will yield higher success rates than pitching the project on the fly. One of the key aspects to a stellar presentation is brevity. Investors are seeing hundreds of project ideas to fund a single one, so a presentation that is compelling and to the point, presented with enthusiasm, is a must in order to stand out in the crowd. If the company executives are not prepared to present the proposal in a polished succinct manner, then either invest in coaching or public speaking lesson, or hire business executives that have the skills to do so.
#4: Target Only the Right Investor Audience. Before preparing an investment offering, thoroughly research who might be the prospective investors. Pre-qualifying the investors to make certain that only appropriate funding sources are being pitched will help streamline the process and save precious time. Determine the investor’s track record for funding companies and projects such as yours. Find out what stage of funding they provide (proof of concept, pre-production, scale-up, etc.) Each investor likely has a geographical region and market sector that they prefer. Narrow down the list of prospective investors before the investment offering is distributed so that only the right investors receive the prospectus.
#5: Be Realistic About the Time it Takes to Get Funding. Realistically, it will likely take as much as 1000 man-hours spread over several months for the capital-raising process. This time will be spent perfecting a business plan and investment offering, developing a targeted list of prospective investors, contacting the list and pitching the project, and finally, negotiating the deal. In some cases, business owners have identified nearly 200 prospective qualified investors, presented the project to 50 of those, to potentially get offers from 5 investors who received the full-blown presentation. It’s easy to see how the time spent can add up.
