Unless you are one of few with blank checks from investors you have to raise capital. They know who you are and will gladly write you a check. This is for the rest of us.
Ever see the short ugly guy with the beautiful girl and you ask why. Two reasons, persistence and people generally don’t know what they want in an opposite or same sex partner.
It’s sort of the same thing with raising money.
There are a lot of reasons why people don’t give you money.
- They don’t know who you are.
- They don’t know your successes.
- They don’t invest in what you are trying to do or the stage of investment.
- They aren’t an alpha, a first investor, but they follow others.
I was on the phone with one of my friends and late business partners. I wanted him to run with a website I started and said I can raise money with you. A year later he raised $3mm for a startup which 10 years later was sold for $33mm. He banked a cool 10mm.It took him a year to raise the money and this was with a resume that his one prior entrepreneurial venture returned 83 times investor capital in 3 years!
Yes, raising money is hard. If you can get someone to do it for you, someone who has done it before successfully many times, do it. But you really can’t be a good client for a professional fund raiser unless you have tried to do it for yourself.
I’ve only once been able to raise millions of dollars in one day once. It didn’t work out for the investor nor the company he invested. It was a situation of the investor wanting and the company needing and it was a time sensitive opportunity. Not in the end, but we all thought so when the deal was made.
There are investors and there are in-vestors. You have to do your homework. Does the investor invest in what you are doing and at the investment stage you are at? Is the investor an alpha, meaning first in, or is he a follower. Most investors are followers. Your first investor is the guy who others follow. He’s the guy who sells I will put up $100,000 and I will get 9 or my friends to do the same. So you have your million dollars. These guys see everything. You have to do your homework. What’s your homework? Know what they do, know it cold. If you don’t know them find someone who does and get an introduction. Best introduction is from a fellow startup team founder who the investor has already backed. Don’t worry if they won’t make the introduction, if they don’t ask them why. Refine or solve the problem they have with your deal and go back to them again and again. They provide a valuable sounding board.
The moving hockey puck and the hockey stick. You never, well almost never, sell an investor from a first meeting. Its many meetings. Investors want to see movement without their participation. Should then invest in a deal where you are sitting on your hands, you have no pricing power and there is no immediacy for them to invest. Remember money prices your deal.Your job is to create immediacy and scarcity. If they don’t invest someone else will. It’s got to be fear and greed. You have to create an action scenario where there is scarcity and the investor prospect doesn’t want someone else to get rich.
Listen to your investor. Although they will not part with money on the first or subsequent meetings they will part advise. They are smart they have the money listen to them and incorporate their advice into your pitch. I have done decks with twenty versions all incorporating investor comments. Sometimes you feel like sysphis, climbing the mountain, just to fall back again. But thats what raising money is.
Work on your pitch. Become Steve Jobs. Your job is to separate an investor from his money. I’m telling you to do this but in the days of the tax shelter there was a tax attorney from Boston. He was both fat and unhealthy looking. The fat bulged from between his wristwatch and his hand. He looked totally uncoordinated. And he used to do this trick with a quarter. He rolled it from finger to finger and then passed it underhand and did it again. It amazed the investors. He didn’t stop until he handed the pen to the investor for him to sign the partnership agreement. He sold $150mm of tax shelters. That was a lot in those days. But he created magic. It’s your job to create your own magic in your deal. Investors in early starups are investing their imaginations. Make their imagination your imagination. Make magic.
So I started my friend out and I actually got him sold because I found him a buyer. Not a buyer who bought the company in the end but a buyer whose interest was shared with their board and they then made a decision to sell. We all had a nice payday.