Suppose you have not heard of the stories about investors handing over million-dollar checks while sipping coffee in Silicon Valley. In that case, you might be living under a rock.
However, I have to debunk this little myth. Media loves the added excitement, and so they bend the truth a little for a bit of a clickbait.
Although, the way they phrase it, it sounds like a financier just gave away part of his fortune in one quick coffee date. If that story did happen, I could assure you that there is more to it than meets the naked eye.
No matter how wealthy your prospective investor is, there is no way they would give you a million dollars to start your dream company. Nothing is ever that simple. It will require time, effort, and sheer luck to build a career that venture capitalists would willingly entrust their investment and rely on your judgment.
For the vast majority, fundraisers fail. Repeatedly. They don’t work for a variety of reasons.
However, instead of highlighting what does not work, why don’t we hone in on the ways that work?
Six Steps to Raise Funds Successfully
Every persuasive and effective fundraiser follows these simple steps. With these six straightforward steps, it is only a matter of time until you reach the funding you need to jumpstart your start-up biz.
1. Figure out if you have something to gain from venture capital or if it suits your business.
Let me be blunt – capitalists expect an ROI of 10 times their investment within seven years. With them backing you up, they will push you to discover ways to grow your sales at a rate that can meet their expectations and given timeframe.
Unfortunately, not all businesses can grow at this speed. It depends on the industry you are in. You can tell from the outset if you can achieve the objectives they set or are not eager to pursue the same goals. If you can’t, nor do you want to, I suggest skipping meeting up with venture capitalists to save both of you the time and energy. Nothing will come of it, anyway.
Investors can smell hogwash right away, so you can’t convince them with your pitch decks and false promises. You have to be honest with your business plans. Brad Hargreaves, the founder of co-living community Typical and General Assembly, advises start-ups to be upfront with their intentions. Hargreaves, himself, was able to raise 200 million dollars for his funding. He reiterated that not all companies are backed by financiers. In fact, there are plenty of successful businesses without venture-backing. Other possible capital sources include bank loans or credit lines, family workplaces, angel investors, and many more.
If you think raising venture capital will do your start-up business some good, then continue reading.
2. Come up with a witty headline that can grab an investor’s attention.
Venture backers are meeting with representatives of young companies all the time. Their inboxes are also overloaded with tons of emails. You can’t just wait for a financier to get to your email. You want an extra force that can make him or her click right away. Fortunately for you, you have one clear opening in your email – your headline. There should be a click-worthy element to it.
One way to do it is to loop in an expert and show an investor that industry experts are backing up your business. Maybe you reached out to a famous industry professional, and he accepted to become your project advisor. Or perhaps you have won an award given to the best start-ups. These external validations can open an investor’s eyes to read more about your email, and hopefully, develop an interest in your offering.
3. Find a way in by having someone endorse your business.
With the number of emails flowing into their inbox, it’s no surprise that some of them end up in the spam folder. These investors rely on groups of consultants, and fellow experts who they know can send good deals their way. If you know someone from this circle who can put in a good word or two for you, there’s your “in”. Otherwise, your email might not even get opened.
One of the best people to approach is an investor’s portfolio founder. These people have brought in enough successful business deals for an investor to trust their opinions. Other people that can give you a way in are clients who are hooked with what you are offering. Check out your clientele and look for those who believe that your business can get bigger and could revolutionize the industry.
Lastly, never ever request investors to introduce you to other companies. There is a rumor going around that investors only share deals that they are not over the moon about. It only makes sense that they keep you to themselves if they find your deal exceptional. After all, that’s how their industry works.
4. Persevere even after you have landed a meeting with an investor.
In any good story, there is always a climax. When wooing investors, be inspired by the plot of all great movies. Work toward a climax. Don’t stop after securing the first meeting. You need to keep the ball rolling. Winning venture capitalists over is a long process. Expect one full month of showing your steadfast and determined nature.
Keep your prospects excited for more. Always send updates regarding your business’ whereabouts, such as new features, new clients, press releases, all the good stuff!
5. Be cohesive and transparent with your goals.
Jon Stein, the co-founder of a goal-based online investment platform known as the Betterment, learned a valuable lesson back when he was just starting out. Around that time, he knew he needed the money for his start-up, but he couldn’t give an exact breakdown of what it was going to be for. He knew that money is essential for hiring people and providing service to customers, but he had only skimmed the surface.
It was hard for him to sound self-assured when answering questions. Eventually, he was able to respond with confidence some questions about goal accomplishments in the first year, the number of people he needed to get on board, the cost of hiring them, and how investors should measure the company’s success.
Stein mentioned that having a solid and cohesive story changed the game for him. He ended up closing $3 million in funding. From then on, Betterment’s gone no other way but up.
6. Set an ultimatum to force them into making a decision.
It seems a bit forward, but here’s why it works. Investors have a habit of delaying making up their minds about the investment. They will go on and on, asking for more information. It’s just going in circles until you take a bold move and define a target date to speed up their decision-making. So, just give them a deadline to make a decision.
Chances are you end up with what you want. If not, you could save time instead of chasing rainbows with a particular investor. Assert yourself, and they might just see your business’ worth. It doesn’t matter if your reason for giving a deadline is artificial, so long as it is believable. That’s why you work hard on providing them momentum because it can influence them to make a definite stand toward your company.
To be honest, it is not unlikely that you can secure funding without following these gems of advice. However, you might need more time, luck, and tolerance to frustration. So why not do it the easy way? Don’t start your fundraising effort if you have yet to map out these steps.