fundraising – Venture Catalyst Consulting

If you’ve done any research about raising funding for your startup or small business – or, really, if you know anything about human behavior – you’ll recognize that you have a much better chance at getting an angel investor or venture capitalist to write a check to fund your business if you’re able to get a warm introduction to that investor. Assuming you don’t spend all of your free time rubbing elbows with multimillionaires, however, you may have to put in a little work to get that introduction and I’m going to give you some tips for accomplishing just that.

First up, make sure you’re prepared for a meeting before you head to start trying to get meetings. You really never know when you might procure that warm intro you’re looking for and when the investor will want to meet. I’m not saying you need to jump through ridiculous hoops and be available at an investor’s every beck and call, but if you get the opportunity to have a meeting, you don’t want to ask for a couple of weeks to prepare. Additionally, you have to remember that these investors have lives too and care about many things much more than listening to your pitch. If someone says they’d love to hear your pitch but are heading off on a month-long vacation next week and need to see you the day after tomorrow, you should be ready to pitch them the day after tomorrow.

Secondly, be sure you know what type of investor you’re looking for. Most investors, whether angels or VCs, have a sweet spot within which they like to make their investments. That means that they’ll typically back companies in a particular industry, at a particular stage of development, in a particular geographic region, and that need a particular amount of money. Before you go out there networking, make sure you know where you fall in that mix so that you can be clear about who would be good fit for you as an investment partner and who wouldn’t be.

Thirdly, get out there and become a part of the community. If you’re watching this video wondering how to get a warm introduction to an investor, it’s likely that you haven’t really become a part of the entrepreneurship or startup community in your area. These circles tend to be pretty small and it’s pretty easy to get to know someone who could make a connection for you, or to meet the investors themselves at one of the events in your area. That’s not going to happen if you’re never present in the community, however. Whether or not you’re actively seeking investment, you should be out there getting to know the other entrepreneurs in your area, participating in events, sharing your idea, learning from others, and just really committing to being a part of what’s happening on the entrepreneurship scene. This is how you learn, network, and find out about new opportunities for your business.

Fourthly, make use of the technology we have available to us and utilize the networking platforms out there to see who you know that could connect you to someone who might invest. Jump on LinkedIn to look up some of the investors you’d love to work with and you’ll immediately be able to see if someone can make an introduction for you. We have so much more visibility and transparency now than in the past when it comes to others’ networks and you should absolutely make use of that. If you don’t have someone who can make an introduction for you yet, move to Facebook or Twitter and try to find out where the investors you want to meet will be and then plan to attend those events as well. If you continue to participate in the same community in which the investor participates, you’ll eventually meet him or her or at least meet someone who knows him or her.

Finally, be persistent. It may take you a little time to get a warm introduction to the investor of your dreams, but it will be well worth it once you do. Remember as you go through the networking process that there is much more value to building long-term relationships with the people you meet than getting a one-time intro to an investor. The best thing you can do is bring value to the community – share your idea, show off your intelligence and dedication, and most of all, help the other members of the community. An introduction is only effective when it’s backed by praise and you need to have a good reputation in the community in order to get that.

That’s it for this week on New Venture Mentor. Thanks for watching and I hope you found this video helpful. If you did, please let me know by giving me a thumbs up on YouTube and maybe even making a small fan funding donation so that I can keep this channel up and running. If you can’t or don’t want to give, no worries. You should still subscribe to the channel and to my email newsletter over at CateCosta.com to make sure you’re always in the loop on the latest information, tools, and tips to help you plan, launch, and grow your new business.

If you follow me at all, you know that I am a huge proponent of bootstrapping your business if at all possible. While raising outside investment from a venture capitalist or an angel may be the glitziest way to go, it’s not right for the vast majority of businesses. If you need a large sum of money in order to achieve the rapid growth that you know your company is capable of and can generate huge returns for an investor, by all means get your strategy together for raising VC money. However, for most of you entrepreneurs out there, you’ll just be spinning your wheels because the business you’re building is not suited for that type of investment.

Somehow over the years raising venture capital has become seen as a success in and of itself as opposed to another step on the journey to success, which means everyone wants to raise it, whether or not they should. Therefore, just to make sure that any of you who won’t be raising VC cash don’t get distracted by the glitz of VC land, here are some of the benefits of bootstrapping that entrepreneurs should take full advantage of if they have the option.

Firstly, bootstrapping is the only real way – with the exception of rewards crowdfunding – to maintain complete ownership and control of your business without taking on debt. If you want to be able to steer the ship based on your goals alone without being bogged down by principal and interest payments that may come due before you’re generating revenue, you have to maintain complete control. When you bring on VC investors, they take equity in your company and seats on your board and you are no longer the only leader at the table. You will be forced to take into account how your investors want things done and, depending on the deal structure, may legally need their permission for decisions about how to manage and where to take your company.

Similarly, if you want to build a long-term business, perhaps one that you can pass down to future generations in your family, you don’t want to look at divvying up ownership and control to outside investors because they will expect a quick profitable exit – a completely different goal. Bootstrapping gives you the option to remain in control or try to make a profitable exit and the only person who you need to get onboard with your decision is you.

Next, when you bootstrap you learn to be thrifty, creative, and efficient. Every single penny counts, so you’re not wasting time on stuff that doesn’t matter or you’ll go out of business. Raising too much outside funding can actually have the effect of making a company inefficient – not just in the sense that they spend a large chunk of their time courting investors and then trying to keep them happy, but because the founders now have more funds to play with and less skin in the game. While most don’t intend to slack off just because they’ve raised a round, having a long runway and a buffer to fix mistakes takes away a certain level of urgency and typically leads to a less efficient utilization of the capital available.

Finally, if and when you do succeed, knowing you literally built the entire thing yourself and that you don’t have to split the bragging rights or the cash with anyone will be an incredibly sweet feeling. If you jump into too many rounds of venture funding, you’d be surprised at how quickly you can dilute your power, control, and payout once you finally do sell or IPO. I’ve heard many stories of entrepreneurs who sold their companies for 7 or 8 figures but only walked away with a few hundred thousand dollars after years of hard work.

Once again, there are certain circumstances when raising venture capital is the best decision for your business, but for the vast majority of companies, bootstrapping is a more beneficial option and you should be careful to weigh the pros and cons of each before focusing your energy on raising money instead of building your business.

Now I’d like to hear from you. What are the best reasons you can think of for bootstrapping instead of raising outside capital? Let me know in the comments section below.

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Venture Catalyst Consulting

Venture Catalyst Consulting

Tag: fundraising

How to Get a Warm Introduction to an Investor

The Benefits of Bootstrapping Your Small Business or Startup