Yesterday Chris and I attended a coaching session put on by FundingUniverse in preparation for their speed pitching event on June 4, which we will be participating in. Kent Thomas, CEO of CFO Solutions, made a presentation on how to handle deal specifics and offered his 10 Tips for Raising Capital. I thought they were good so I am posting them here for your enjoyment.
1. Use Your Own Money First-even though the prevailing thought for some time has been to build a company on other people’s money it is a sign of confidence and preparation to investors that the entrepreneur has some skin in the game as well.
2. Friends & Family- If mom won’t invest in you why should others? Now, there may be many reasons that friends and family don’t invest ranging from their financial situation to holding dilution to a minimum, they should at least be approached.
3. Act Like It’s Your Own Money- Kent said that during the dot come bubble entrepreneurs were spending large sums of money irresponsibly. That is the reason the bubble burst. Being able to give investors a detailed report of where any money to date has been spent will tell them if you are treating the money as your own.
4. Market Research- This is a big, big problem for entrepreneurs. Know your market. There are many free or cheap options out there to allow companies to conduct some basic market research that will give them valuable insights into their market. For instance, Chris and I have launched a survey to travelers asking for their feedback on our idea and have spoken to and continue to speak to hoteliers to get their feedback.
5. Cash Flow Projections- If someone were to invest, how long would their money last? Knowing your monthly burn rate and how long money will take you is key. If you are wrong or worse, don’t know, then it is likely these same investors are going to have to put more money in or help you raise more much sooner than either of you expected.
6. Valuaton-Get Real- Something Kent said repeatedly was “Put yourself on the other side of the table.” Investors are looking for a 10x return on their money. To achieve that they are going to need to end up with a substantial enough equity stake so that even if they are diluted by future rounds of funding they still hold enough to realize that return. He said the sweet spot for most investors is between 20% and 40%.
7. You’re Responsible- In running a company entrepreneurs can delegate a great many things. But one thing they cannot delegate is fundraising. Investors want to see a dedicated, passionate entrepreneur behind their investment.
8. Smart Money- Look for money that comes with more than just dollars. Investors that bring expertise or insight into your particular industry are the best ones. Also, just as investors will be checking you out, make sure you check them out before accepting anything.
9. Accounting Records- Know your books. It is very frightening to investors when entrepreneurs are in the dark when it comes to accounting. There are smart people and services out there to help out those who aren’t financial geniuses, but don’t neglect this part of your business.
10. What’s the Offer/Instrument?- Come to investors with a deal in mind. They aren’t going to negotiate against themselves so don’t ask them for a number, they will just move on. Know what amount of equity you are selling for their money or what type of instrument you are looking to use to raise the funds.
