It only takes one to see it! What you will face raising money for your startup.
Raising money for a startup is a difficult and time consuming task that takes your focus away from scaling your business. But, it is a necessary function. It is purely a numbers game of getting in front of as many people as possible to find the right partners, the smart money. What you are looking for is money that can bring along some level of expertise to help you grow the business and assist in raising future rounds of capital. What you need to be careful of are moneymen who become obstacles to that growth. I have raised capital for a number of my own startups over the past 15 years and the hardest part is keeping a positive outlook while dealing with all of the many investor personalities.
The Uninterested Investor
It is always a pleasure to pitch your idea to the uninterested. This is a group that glare at you while you are giving your presentation with a deadpan stare that reeks of arrogance. The vibe they give off is one of “why are you even breathing in the same space as me.” You know from the minute everyone enters the room that this meeting is going nowhere and there is no chance of funding. I always speculate that these groups take these meetings for sport. So my partner and I like to have a little fun and turn the tables on them by asking them silly questions during the meeting, distributing our bank wiring information to them and asking if it would be easier to wire the funds or just to grab a check from accounting. It doesn’t matter, you aren’t getting money out of them anyway.
The Excited Angel
This guy loves the concept, loves you and wants to structure a deal that works for everyone. He will spend the first 15 minutes telling you about how many startups he has helped grow to multi billion dollar companies. His ending to the meeting will focus on how he is going to discuss it with his group and come back with a proposal. This is where you will get some of the most bizarre proposals you will ever see. The latest one I received was that his group was going to provide a paltry amount of funding for control over the company BUT they would give us a provision to buy back a certain amount of the business. “So, let me get this straight, you get control over the company for a few hundred thousand dollars but you will allow us to buy back from you what we already own at a future date? Let us get back to you on that.” I guess some guys just think they are worth the whole company just to have around.
The Sophisticated Investor
There are many sophisticated investors on both the PE and Angel categories and there are a lot of guys that want you to think they are more sophisticated than they are. They do most of the talking during the presentation and ask a lot of questions about the minutest details of the business. My guess is this is an effort to impress you with how detail oriented they are. Once they start throwing out the alternative capital structures for their investments that is a sign that they are all talk. “We like to get involved in the early stages with a convertible debt instrument that will carry a 20% premium and a 12% interest rate along with additional warrants. We run this through our Cayman Islands banking subsidiary, for tax purposes you understand. This takes the valuation discussion off the table. Josh will be your point person for the Due Diligence process. “ Every sophisticated investor has a Josh in his office doing due diligence and he will always find some reason they can’t carry forward with the investment.
The Strategic Investor
I have always been the most successful raising capital through someone strategic to the business at hand. It becomes a win-win for everyone if the infusion of capital can have an immediate positive effect on the investor’s business. For example, I had started a beauty business several years ago and needed growth capital. Logically the best place to find it was a contract manufacturer who could provide the capital and take over the manufacturing and distribution of the products. I got the growth capital necessary and a partner who could manage the entire supply chain and the investor got a brand, a growth vehicle and additional volume in his facility. I would urge any entrepreneur to always think strategically about the acquisition of capital.
Raising capital is a full time job and it requires a tremendous amount of self-confidence and belief in your business idea. Presenting to prospective investors day in and day out will have you questioning your very existence and not everyone will see the opportunity like you do. Just remember that it only takes one to see it.