In my experience, there is nothing fun about asking for money. Fundraising is a massive undertaking, a full-time job on top of a full-time job. For many of us, this huge project is a necessary step in scaling your business to the next level.
Over the years, I have raised more than $100 million in funding for different startups that I have been a part of. My latest round involved a mix of private equity investors, angel investors, and one of the largest companies in the world. The diversity of investments I have received over the years has provided me with some vital insights into raising capital. Here's my official cheat sheet that helped me raise capital.
Don't raise money unless you have to
Fundraising events are touted in the media as a success story, a huge win for an entrepreneur. This creates the narrative that it is a "must-do" for everyone on their entrepreneurial journey. In reality, that's not the case. As a matter of fact, my first piece of advice for raising capital is: Don't do it.
By building your business without investors, you have the luxury of making decisions that reflect your vision. Most investors will want equity in the company and a say in how you run the business, and then you are no longer completely free to express solely what you want.
The cost of creating a prototype, an alternative to raising capital for your idea, has gone down significantly over the years -- check out Strikingly or Ucraft. These companies offer free options to help you build a website, while Google AdWords has free programs to create advertisements. The combination of these resources may be all you need to see if your idea is worth pursuing without spending a dime.
If you have an existing business that needs capital for scaling, consider cutting costs or raising prices. You can use excess profits to invest in the growth of the business. This is commonly referred to as a form of bootstrapping. It may not be touted as sexy or cool, but, remember, raising money isn't cool -- it's a tool. A tool that comes with a cost.
For those of us who need to scale our business and cannot rely on the above methods, here is the first step to finding the right investors.
Shape your pitch deck to meet the interests of your investors
To get a meeting with the right investor, it's important to build a pitch deck that best represents your vision. Remember, there is no catchall pitch deck out there; you need to put in the work. Different investors care about different aspects of their investments: Some focus on the immediate items such as the sales your business will generate and when they will get their capital back, while others may want to see how you're focusing the long-term growth of your company.
Make a pitch deck that's focused but customizable. For instance, if you have a more risk-averse investor, you may want to show how solidly your business can operate. If you have a strategic investor -- like a large corporation -- you may want to focus on the ancillary value your business can create for their business. Both pitch decks can have the same foundation, but you'll just need to add one or two slides that speak to the intention of your investors.
A few months ago, I wrapped up a transaction in the millions with a large strategic investor. The benefit to them was for my organization to create authentic connections into my client list. The pitch deck had to show a vision that investing in my company was a cost-effective way of tapping into our demographic.
We simply took the traditional finance material that was in our pitch deck while we were raising from a private equity firm and put that material in the appendix section. Then we created some simple sides that showcased the strategic investor's intention and how we were in a unique position to make it happen.
Have all the answers but control the questions
I got a hundred noes before I got one yes and spent thousands of hours to make that yes happen. A good investor sits through thousands of pitches, so you must stick out by owning the narrative.
I have found the best way to do this is to control the meeting. One way to control the meeting is by asking the prospective investor, "How do you see yourself providing value to the company aside from capital"? It is very important that you ask this from an authentic place and not just to check a box.
You should look at their answers as a qualifier for joining your team. This will alleviate the pressure of the dog-and-pony show by putting the emphasis on them to prove their value.
Don't take a check from just anyone
The idea of easy money from an investor sounds wonderful, but in the world of business, strings are always attached. If you do not carefully vet a potential investor, you may end up walking into a nightmare. After writing a check, the investor is part of your business and -- in most cases -- for the life of the business. If they lack entrepreneurial experience, or if their values are not in line with yours, you will find that this easy money will lead to a multitude of distractions, such as unnecessary meetings and redundant questions on your vision and execution, and sometimes this can lead to things such as hostile takeovers.
Focus on attracting investors that can have more value than their bank account. Their investment will continue to yield value far past the money they've put into the business.