The rise and fall of the Alliance of American Football League (AAF) highlights an important truth:
There is little certainty in monetary promises and pledges.
Many people as well as some venture capital (VC) firms were interested in the AAF and pledged money in support of this new league. In addition, the AAF assumed that they would have support from the National Football League (NFL) — ultimately, it didn’t. As the first season progressed and more money was needed, the league folded after it became clear that the NFL was not going to actively support the league.
When companies are in money-raising mode, you should not assume eggs will hatch nor that people will follow through until you have signed paperwork. Raising money isn’t a one-time effort — it’s continuous and must account for snags and hiccups along the way.
When raising capital, business owners are wise to remember the following:
- Continuously Network: Work hard to find good matches. If you feel that there is a particular VC or angel investor that specializes in your industry, use social media, like LinkedIn, or family and friends to forge a connection. Utilize your strongest contacts to see if they can help you reach your ideal investor. An excellent example of how to best raise money using connections is highlighted in our conversation with Judy Robinett. To hear Judy expand more on this subject, listen to the podcast here or read the summarized article here.
- Never Assume: As the example with the AAF illustrates, it is important to remember that you can’t control or assume certain necessary transactions or events will happen, especially when you don’t have a written contract or agreement. Make sure that all your facts are truly facts and not assumptions or estimates. Your credibility with your potential investors will be negatively impacted if you state that certain arrangements or agreements are final when, in fact, there are contingencies that exist that could ultimately scuttle the deal. Your reputation and your word are on the line and will affect not only the current status of your business, but your ability to raise money down the road.
- Your Work Is Never Done: Once you receive money, don’t breathe a sigh of relief. Getting the money from your investors is only the beginning of the relationship. Once you receive the money, you now have a key stakeholder who will be very interested in how the company is doing and will want to receive regular updates on your progress. Executing your game plan and communicating that to your partners is critical for both the short-term and long-term success of your company and, ultimately, the valuation you will receive if/when you exit or you sell the business.
Take-away: Raising capital for your firm is part of your overall plan — not the end game to your plan. An extra sense of urgency should be created once the money is there so that you can maintain the momentum of your company’s progress. The quest isn’t over; it’s just beginning.
Co-founders & Managing Partners