How To Raise Capital

Funding Request
Writing a good funding request can be the difference between getting a call from an investor and getting overlooked altogether. Top mistakes people make: too much hype, too much information, too little information, poor spelling & grammar. A well-written request should include the following:

 

Headline - The product you sell, the use of funds and the amount you are looking to raise.
Short Description - Provide any relevant information that may set the opportunity apart. 
Full Description - Spells out your opportunity and covers the most basic aspects of a deal.
Market Opportunity - What market are you serving and why is your product such a great solution? 
Solution - Your market opportunity should make the solution very obvious.
Requirements - Explain the requirements you have for the investment. 
High Points - Add whatever high points you believe significantly increase the value of your deal.

 

What Kind of Capital Do You Need?
Pursuing the wrong type of capital can make your capital raising efforts a nightmare! That’s because each of these THREE sources makes sense for a different stage of your business. 

 

Seed Capital – The first $50,000 that you invest on your own (or raise from friends and family). The most popular sources of seed capital include credit cards, lines of credit, second mortgages, savings accounts, and small loans from friends and family. These are the sources of capital you don’t read about in most magazines but are how most companies get off the ground. Instead of looking for investors in your deal, you may want to consider looking for people who are willing to work for equity. Also consider a number of personal credit options like a small business loan from the SBA or even just a regular credit card. 

Angel Capital – A larger investment of up to about $1 million that individual, wealthy investors provide. The best time to find an angel investor is once you’ve exhausted your options for seed capital. At this point you’re no longer betting your own money, you’re betting someone else’s money. Securing angel capital is often the first step before approaching a venture capital firm about your deal. Venture capital firms are typically looking for companies that already have some operating history and simply need to “scale up” quickly. Angel capital can often help get you to the point where you are fully operational.

Venture Capital – A very large investment (usually over $1 million) provided by an investment firm that specializes in making early stage investments. Venture capital makes the most sense for your business when you have already gotten a great deal of traction in the marketplace and you need a substantial amount of cash to grow quickly. This means taking an existing company to the next level, not creating a company from scratch.

 

How It Works

Phase One: The Match
Most capital raising processes begin with the entrepreneur and investor getting introduced. These introductions can be made by friends and family, professional colleagues, or at networking events. During Phase One your goal is to simply identify as many potential fits for your investment opportunity as possible. A dozen investors would be a good number to start with. 

 

Phase Two: The Contact
Once you have created your list of potential investors, the next step is to make the initial contact. During this phase, your goal is get a full “pitch” meeting that will allow you to meet with the investor (preferably face to face) to give an extensive overview of your business opportunity. 

 

Phase Three: The Pitch
If you’ve made a good impression with the initial contact, an investor will then invite you to provide a full-fledged pitch. Getting to the pitch is what raising capital is all about. 
Your goal in this phase is to get the investor interested in putting a deal together.

 

Phase Four: The Deal
If you’ve made it to Phase Four you’re far ahead of the game. Very few entrepreneurs make it to “yes” with investors.There are a few common sticking points that can make or break a deal. Valuation is the most heated negotiating point.