Most entrepreneurs have never raised capital.
And, like it or not, it’s an entrepreneur’s ability to raise capital, and NOT her business idea or managerial skills, that often determines the success, or lack thereof, of a venture.
To make matters worse, raising capital is extremely challenging and complex. The list of questions that entrepreneurs need answered in order to raise money is nearly endless:
How long should my business plan be?
How do I create a financial model?
How do I need to legally structure my company?
Who are the right investors?
Should I be seeking equity or debt? Or both?
How do I find and convince them to invest in my company?
What type of stock must I issue investors?
How do I negotiate financing terms?
Etc., Etc., Etc.
Navigating through the capital raising waters is extremely difficult for most entrepreneurs and as a result, most fail to achieve success. This can be very frustrating to an entrepreneur.
The first capital raising reality that most entrepreneurs encounter is just how long it takes to raise capital. Simply the process of understanding how to raise capital could take six months to a year, and if you don’t learn how to do it correctly, you’ll burn bridges left and right!
Capital raising can be broken down into three steps:
The first step is understanding what types of capital might be available to your firm.
And there are many, from venture capital to traditional bank loans to customer financing to convertible debt. In fact, there are nearly 40 viable financing options that are accessed every day! Unfortunately, most entrepreneurs go after the wrong option since they aren’t familiar with their options. For example, only about 10% of business plans that are submitted to venture capital firms could possibly warrant venture capital.
Once you understand what type(s) of capital is right for your venture, the next step is to develop your business plan.
The business plan is not just a strategic document. Rather it is a marketing document that sells your company to investors or lending.
In this regard, your plan must be tailored to the stage of your company and the type of investor. For example, if you are seeking an equity investment, the plan should focus on the potential for investors to receive 10 times their money back or more! Conversely, if you are seeking debt capital, your goal is simply to prove that you will easily be able to make all loan payments.