Access to capital is a perennial challenge for most entrepreneurs. Three experts share their advice on raising capital, in good times and bad.
Despite some hopeful signs of a recovering economy, entrepreneurs are still finding it difficult to raise money. A private capital markets survey conducted by Pepperdine University last fall revealed that 50 percent of business owners still can’t get financing.
So how do you make sure that you’re in the other 50 percent--the group that manages to walk away with a check? At Inc.’s annual GrowCo conference in New Orleans, we asked three experts for advice on raising money. Weighing in were Tim Williamson, co-founder of The Idea Village, a local incubator for entrepreneurs; Amith Nagarajan, chairman of Aptify Corp. and an early stage investor; and Amos Winbush, CEO of CyberSynchs, a universal data transfer and synchronization company. Here’s a rundown of the key points they made:
1. Make sure you’re ready. “We’ve had 3,000 entrepreneurs come to us needing money,” says Williamson. “And 99 percent of them were not even ready to get the money." Taking on an investor means you’ll always have pressure to execute. If you’re looking for outside expertise, ask yourself if what you really need is a good accountant, or a lawyer.
2. Bootstrap for as long as possible. “We try to coach people not to give up equity until you need to,” says Williamson. Winbush, for instance, paid employees (who he found on Craig’s List) in equity and ate Ramen Noodles for the first two years of his start-up. Finally, in 2009, he knew that if CyberSynchs was going to grow he’d need outside investment. By that time, he had already created significant value and was able to raise $1.2 million for 6 percent of the company. More recently, he raised a whopping $200 million for 12 percent.
3. Be prepared to hunt. “Everyone is one person away from an investor,” says Williamson. The trick is identifying the connection that will lead you to the capital you need. Go to local meetups and, says Nagarajan, “to local angel groups for advice to help find investors interested in your niche or industry.” He also suggests joining peer groups like EO, where your fellow entrepreneurs may be able to provide valuable connections.
4. Get your ducks in a row. Winbush says that having all your internal processes in order before you seek financing is critically important. That includes not just your finances, but any patents or contracts that are key to your business. “You also need to look at your team’s strengths and weaknesses,” adds Nagarajan. “Know ahead of time if you have any liabilities and be prepared to address them, or they’ll be uncovered for you when you’re not prepared.”
5. Remember that you’re interviewing them, too. “Investors will ask for references,” says Nagarajan,” but you should ask for references, too. You need to learn about their investment style to see if they’re a good fit for you.” Among the questions he says you should ask any potential investor: “How would you define success? What’s your time frame for holding an investment? Who would you put on my board?”
6. Don’t give up. Raising money is a journey and it requires stamina. Be prepared for “no”, but also resolve to keep knocking on doors. “Get a book and write the names of 50 people in it,” suggests Williamson. “Ask every one of them about your idea. It’s a process and it’s tough.” But even in an economy limping toward recovery, it only takes one “yes” to get you off Ramen for good.
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