Raising capital is a vital part of entrepreneurial business. Obviously, if you have saved enough money personally to fund every phase of your entire business plan, you can check this off your to-do list. Every other company founder must devote serious time and effort to this challenging task. The key point to remember is there are no shortcuts … unless you come from a generous, wealthy family. This article will preview the most important basics you need to understand as you start the capital raising process.
The first thing we should discuss is mindset. Raising capital is NOT easy. You need to look in the mirror and tell yourself you are ready for all the rejection you will almost certainly face. You should commit to yourself that you will be persistent, won’t give up … and most important of all you will stay positive, throughout this potentially long process. Yes, you may get lucky … and the first investor who hears about your company’s business plan will agree to fund your company. For most of you, that is a delusional dream.
Those of you who are new to business … as well as capital raising ‘history’ … need to accept one basic fact. Even eventually great companies almost always had an incredibly difficult time getting funded. One of the most famous lessons for entrepreneurs was a company you may have heard a lot about, or even stopped in at one of their locations: Kentucky Fried Chicken. Colonel Sanders was a retired postal employee who took his favorite fried chicken recipe and tried to raise money and start his first store. He was, in his own words, turned down by over one thousand investors. He clearly persevered … and the rest is modern business history. It doesn’t matter if he exaggerated a little about the number of rejections, the fact is it took amazing belief and hard work to launch his iconic company.
The next step, once you are certain you are mentally prepared to launch your ‘crusade for capital’ … is to ‘Validate Your Vision’. You may not have heard this term before, but it is an important step for every entrepreneur. The key reason you want to verify that your business vision or ‘dream’ makes sense, is to increase your chances of success. The dynamic nature of modern business is a fact of life. This means things change so fast that your initial business concept … and past experience that sparked your new company’s potential launch … may no longer be a ‘slam-dunk’.
That’s not the only challenge. Many successful entrepreneurs will tell you to follow your ‘passion’. What do you LOVE to do? There are far too many stories about people starting a business where there is no demand or interest, so passion for your vocation is only one test. You may be great at bird watching, but a bird watching guide business in Antarctica in the winter will not attract a single customer. That example is clearly far-fetched, but trust me … Many business ideas are never researched thoroughly, are ‘half-baked’ and have little chance of succeeding.
Your main goal when validating your vision is to get outside input and thoroughly research every aspect of your business model. This will serve a few purposes. First, you may learn your product or service may need to be modified before launch. Second, you may discover that your target demographic is not what you think it may be … and you can refine your marketing plan. Third, you may find that you need to scale your business faster than you thought … and you need to raise more money than you originally planned.
Finally you may learn that your current business model simply won’t work. There are many other factors that need to be evaluated and tweaked before raising capital for a new company’s launch or expansion. This is equally true for a new product line or service division startup. There are definitely more things you can learn while validating your vision, but the sad reality is a majority of entrepreneurs fail to take this step seriously … and this probably adds to the 90% failure rate of start-up and young, early stage companies.
This leads us to the topic of creating your business plan. Every start-up and growing company looking for funding needs a premium, professional business plan. Every investor you approach (except possibly your close family … and they should too) will demand a complete business plan. And you better know your numbers. This means, as part of your business plan, you must create detailed and summary cash-flow pro-forma projections (typically 5-years) plus whatever existing financial statements you have … for your currently operating business, if you are not a start-up.