Nevada is experiencing geometric business growth, with firms ranging from start-ups to established companies flourishing. Multi-million dollar projects attract most attention, but as is the case throughout the country, the majority of economic growth comes from small business. Properly capitalizing a new venture is one of the most important and difficult aspects of an entrepreneur’s professional life.
Raising capital is difficult even if undertaken appropriately. Most often, the entrepreneur has the interests and instincts of an operator. Raising capital is a finance matter well outside most entrepreneurs’ comfort zone. The process of raising money can be difficult and painful.
Nevertheless, with appropriate structure, attracting capital can be made relatively less burdensome. Here are some general guidelines about raising capital:
You will have greater success raising money from someone you know than someone you don’t know. When trust is already present in the relationship, it is easier to secure the necessary finances.
You will have greater success raising money from someone who has had success in a project that you have been part of, even if your part was small. You must be associated with success.
You will have greater success raising money from someone who does not work in the same industry. An investor that has achieved financial success in the same industry may not think he needs you.
You will have greater success raising money from someone who is a customer of like businesses.
You will have greater success raising money from someone that has previously made high-risk investments. Don’t spend too much time courting an investor with an extensive bond portfolio.
Beyond the general discomfort of turning up hat-in-hand to friends, family and acquaintances, you will be treated to a rough personal examination. In addition to a sentimental desire to help your success, the investor needs to be comfortable with your knowledge of the business. He must also believe that you have the drive, perseverance, ethics and character to generate a return on capital. The investor has only your projections and your history to go on. He will look to see if you have been successful in the past, specifically trying to ascertain whether you know how to win.
Daunting though it is, I strongly recommend that you not attempt to outsource this phase. Associates may offer to raise the money for a percentage of the company or for a fee. Outsourcing will only be successful if you cannot afford the time, and it will fail if you are incapable of completing the task yourself. Think of it in terms of getting a loan from a bank when you need money – impossible. I would never invest in a startup if the entrepreneur were not leading the capital raising effort. The message you would be sending is that investor relations and capital stewardship are not worth your time.
Though difficult, the process of raising capital is extremely useful. You will be forced to tell your story almost endlessly. In being challenged on the particulars of your business plan, you will become more confident in some details and make improvements to others. The process requires sharp focus and organization, but generally pays off – though sometimes the payoff is in preventing you from losing money in a venture, rather than giving you the opportunity to do so.