Raising funds is one of the hardest things that an entrepreneur may do. Often, there is a disparity between what the entrepreneur feels his or her company is worth and what an early stage investor believes. It is important to navigate difficult conversations about business transactions and focus on the analytics of the business and less on the “feel good” and emotional side. We have noted over the years that business owners that become too emotionally attached to their business have a high likelihood of potentially burning bridges with prospective investors, leaving money on the table.
Over the years, AcceleratingCFO has helped several companies raise money in equity markets, debt markets, and private placement deals. Despite all the varying terms and legal complexities that surround each of these investments, a successful capital raise has a few common denominators:
- Chemistry: Oftentimes, a potential investor will seek to invest in business owners he or she both respects and likes. A very famous example of an investor that does this is Warren Buffet, the famed billionaire. The strength of the management team is one of the top factors that influence his investment decisions. In Warren Buffet’s world, he invests in people who will be able to manage a business, with a proven track record of success. This is very similar to how early stage investors evaluate investing in your company. They will see how much you’ve accomplished and your ability to potentially transform the industry that you operate in. What’s the best way to demonstrate expertise? Simply being yourself and letting your track record speak for itself.
- Path to Success: Investors want to see a blueprint that shows how they will cash out in a profitable exit strategy. We know it is difficult to predict five days from now, let alone five years from now; however, investors should be able to see a clearly defined path. Communicating this vision during the capital raise round will impact the type of investor you will attract and work with. Without a clearly expressed vision, stress and dissension could emerge from bringing on partners with different goals than the executive team.
- Use of funds: It’s critical to demonstrate how the funds will be used. When clients hire AcceleratingCFO for assistance with a capital raise, we help you determine what you plan to do with the money once you get it. Some clients know specifics or the general area of the business that needs monetary support; however, more often clients don’t have any idea how they want to use the funds or have a generic, “I think it belongs here” answer. Without a clear vision of how funds will benefit your business, you will come across as not knowing how to effectively manage your cash flow. Investors won’t fund a company that they will feel will be wasted or not used in the most profitable manner.
There is no specific cookbook for how to raise money – if there were, it would be a lot easier for start-ups to get funded in a cost-effective manner. However, these points will put companies in the best possible position to raise funds. How a company adds value to customers and to potential investors needs to be demonstrated in order to successfully raise money.
Takeaway: If you are one of the growing number of companies that is looking for seed capital or series A funding and need financial expertise and assistance at your side, contact Brian or Scott at email@example.com.
Co-founders & Managing Partners