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Here’s The Truth About Raising Capital For Your Business Idea

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Show Us The Money

It seems like everyone wants to be an entrepreneur these days. In the generation of “The Social Network” we’ve all become obsessed with startup culture and the lure of making millions.

When your side hustle becomes your full-time hustle and you want to boost things up a level, the next natural step is often getting external funding to grow your business.

There are several sources that you can consider for an injection of cash; loans from family and friends, small business loans from a bank or credit facility, or capital raising from investors.

“An investor’s job is to buy equity in your business today and your job is to spend that money wisely to generate a return for that investor in the future. It’s not something to necessarily celebrate but more of a necessary evil.”

As always, there are pros and cons of externally raising funds and credit should be given to all those entrepreneurs who are running businesses that have never sourced money externally – those who’ve maxed out credit cards, worked two or three jobs at a time to keep things afloat and made many sacrifices to now hopefully own something that they love to run every day.

Bringing in external money will of course impact the future course of your business and there are many factors to carefully consider.

Exactly how you will do this will be unique for each situation but for today I’m going to focus on getting funding from external investors.

External Investor Basics

Before I get into how to raise money from investors, a reminder of exactly what raising money from investors is: It’s essentially selling a portion of the ownership of your business in exchange for cash which you then invest in the future growth of the business.

An investor’s job is to buy equity in your business today and your job is to spend that money wisely to generate a return for that investor in the future. It’s not something to necessarily celebrate but more of a necessary evil.

By raising capital, you are acknowledging that you don’t have sufficient profits to do it on your own. It’s a willing sacrifice or realisation that to take two steps forward you sometimes need to take a step back.

Types Of Investors You Should Trust

Investors can come from a wide variety of sources. Your professional network, specialist investment firms (private equity or venture capital), people like me who manage other people’s money, or even family and friends.

When looking for investors, try and engage with people who have a really good understanding of what you do and who can actively help you achieve your goals.  If you are short on business-acumen, look for investors who have a reputation of being savvy business people.

If you lack distribution capability in a given market, partner with investors who have access to those markets.  Good financial partners should offer more than just money.  Money is great, but where it comes from it also important. Your goal should be to raise money from the right people, at the right time, for the appropriate valuation.

Investor Pitching 101

LinkedIn is a great place to find people in the ecosystem in which you want to operate.  Try sending some people a direct message and instead of just attaching your pitch book and a spiel about how you are “Uber for…” – offer them something they actually want.

Think, “what can I do for this person for free that will encourage them to give me 10mins of their most precious asset (time) to talk about what I actually want to talk about?”  You can even practice on me – https://www.linkedin.com/in/lukelaretive.

Pitching to investors is about selling part of your business and selling anything is about smart grinding. Get comfortable with cold calling, random meetings, engaging with a community, attending events and try to always improve your approach.

Vary your tactics and test what works and what doesn’t. It’s not good enough just to get someone’s attention. You’ve got to keep that attention long enough to get them to consider your value proposition and hopefully invest.

Once you’ve found a potential investor that you connect with, also think about how you are selling yourself to them and the value that you can offer. The specifics of your business model are important but so is the person behind it – you.

Follow Through With Strategy

Successful entrepreneurs run great businesses, but more importantly, they are highly effective operators with diverse skill sets.  They’ll win at whatever they put their mind to. You are selling yourself as much as you are selling your business so keep that in mind.

Finally, and importantly, get some professional legal advice. Selling equity in your business is a significant negotiation and you have a lot at stake.

A decent lawyer will help you navigate the legal requirements and ensure that all contracts, terms and agreements protect your interests.

Special thanks to Luke Laretive who is a Senior Private Wealth Adviser @ Shaw and Partners. This is general advice and you should consider it in light of your personal circumstances.

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