CAPITAL INSIGHT Part 6 of 7
When I first take on a new client; both the qualification process and their willingness to go through it determines whether we will work together. The process of raising funds truly is an art rather than a science.
The Truth about Raising Capital
â€œNo B.S Strategies to Find Investors!â€?
(Part 1- 5 can be found in the Business section here at Black Star News Online)
A good friend and former partner of mine named Steven is the director of an angel investment group. As such he is constantly inviting me to functions to meet investors and well positioned business owners. Recently he sent me a copy of an interview with Arthur Rock. For those of you who may not know who he is; Mr. Rock is a venture capitalist from Silicon Valley and was an early investor in major firms such as Apple Computer, Scientific Data Systems, Teledyne and Intel. In the interview Mr. Rock is telling a story about a presentation that he had recently given:
â€œAt a presentation I gave recently, the audienceâ€™s questions were all along the same lines: â€œHow do I get in touch with venture capitalists?â€? â€œWhat percentage of the equity do I have to give them?â€? No one asked me how to build a business!
Mr. Rockâ€™s comments sum up why so many people fail to attract investors. Most do not understand that the construction and development of a business is what draws them out. This is the crux of what this set of articles are truly about.
When I first take on a new client; both the qualification process and their willingness to go through it determines whether we will work together. The process of raising funds truly is an art rather than a science. The nature in which investors must be handled is similar to the sculpting a well tuned vase from what was once just a mound of clay. However, once clarity and focus has been brought to the attention of the appropriate parties the rest simply goes on its natural course resulting in success. This also works well in those cases where it is a loan or investment of a personal nature.
You must understand the two basic categories that investors fall under. The first are Professional Investors. This group is also known as Venture Capitalist. Venture capital organizations typically receive hundreds if not thousands of requests annually from many would be entrepreneurs. The truth is that most people will never receive funding from this sector. The second group is often referred to as Angel Investors. Angel investors are similar to venture capital groups except that they often have different goals in mind when it comes to making investments. However, some are as difficult to pitch as venture capital firms. It should also be noted that while this group has a different set of priorities they are not an easier way to go as many get rich seminars and books would have you believe.
Provided below are some ground rules for dealing with both investor types.
Key Points when engaging a Professional Investor/Venture Capital Group:
1. You must show that you are building a business. Investing is not charity!
2. You must develop the ability to sell, because they are looking for someone who can.
3. Find an advocate for what you are presenting. A referral beats a pitch anytime.
4. Create a track record, documentation beats conversation every time!
5. Do not try to hide defects or problems.
6. Create or acknowledge the competition. If there is no competition there may not be a market.
7. Keep in perspective that your idea is not the only one they will hear.
8. Please be prepared to answer any and all questions about the business.
9. Treat your interaction like a date. Therefore, it takes time.
10. Never forget why you took on this project in the first place.
Key strategies for dealing with Angel Investors
1. Donâ€™t take them for a fool.
2. Determine their purpose and motivation.
3. Give them the chance to live through you.
4. Make your request plain and easy to understand.
5. Be nice and approachable.
6. Recruit people that they know or are at least familiar with.
There is something that I should have mentioned about my friend Steven. Although he is now the head of the investor group, he and I successfully sold advertising together. The key word is SALES. You see the secret ingredient that many people fail to add to their plan is the need for professional selling. Most people when you approach them on this subject the first response is â€œoh I am not into selling anythingâ€?. If this is the case you will never be able to convince someone to invest you or your ideas. Selling is simply communication. This ability enables most of the successful entrepreneurs to achieve their goals of raising the necessary funds.
But Greg this article wasnâ€™t named, "How to deal with investors", but "Ways to find investors." I know some of you were thinking that, but remember, the process we all learned by as children; crawl, walk, then run. Ok, so now that you have a better understanding of how to deal with investors, letâ€™s explore a couple of simple ways to find them:
1. Look in the classified section of national newspapers for investors actively seeking investments. You will be amazed at the number of investors who use this method for locating investments.
2. Look in the yellow page directory for the names of local investment groups. (if you are in real estate this is an untapped gold mine). Just last year I successfully raised $8.9 million dollars for a property that I was looking to purchase in NYC without using a nickel of my own money.
3. Write an article indicating not the specifics of your idea, but pointing to your expertise in a certain area. This will let people know that you have something to offer. (Be very careful however about letting people know the specifics of what you are planning)
4. Contact a competent Business Advisor and see if they are interested in working with your project for a specified amount of equity (ownership)
5. Get creative. You do not know what someone may take as compensation to help you until you ask.
In conclusion; all aspects of the task of raising funds really boils down to marketing. If you can learn to properly package and communicate your value, who knows, you may not only hit the goal you have set, but become an investor yourself.
Join us next week and learn how to â€œMind Your Own Business or Suffer the Consequences!â€?
Greg Jones is CEO of GJ Presents, Inc, Business Development Advisor and author of the upcoming book The Art of Raising Capital.
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