Raising Money Can Be Hard: How Can I Make It Easier?

When looking for funding for your company, you first must determine what stage your company is in and then decide how much funding you need.  There are many different options for raising funds for your business that can seem overwhelming but are actually much easier than they appear with a little bit of information. 

1. What Are the Types of Investors? – There are many types of investors out there but three primary types are Friends and Family, Angel Investors and Venture Capitalists.  While Friends & Family are obvious, there is a great deal of confusion over the relative roles that venture capitalists (VCs) and angels play in financing companies. Contrary to common wisdom, the two groups are not interchangeable. Angels, who are often cashed-out entrepreneurs, invest money that companies need to get off the ground from their own pockets (typically between $250K and $1M).  VCs, by contrast, invest mostly funds from investors in the VC’s fund.  These limited partners (LPs) are wealthy individuals or families, pension funds, insurance companies, and the like.  VCs and other private equity firms are also called institutional investors and they typically come on board later in a company’s life, supplying the $3 million or more needed to keep both early-stage and mid-stage companies going.  In 2009, VC investments exceeded $20 billion, with about $1 billion invested by Angels.
2. What Type of Investor Do I Need? – You have to decide whether your company is at the very beginning stages of its life (the seed stage) or if you have already entered that stage and need more substantial money to continue going.  Startup companies are typically the companies that are at the seed stage and need a lower dollar amount to get their business set up in the first place.  In the startup phase businesses start to produce their products or services and begin documenting their response & market interest so that they can get larger investors. 
3. Startups and Angel Investors – Of course, all startups are going to need to raise money.  Unfortunately, being uneducated on how to raise money is actually the biggest stumbling block investors face.  The first step therefore is to gather as much knowledge as possible about the subject of seeing investments. Some startups have been self-funding, but most aren’t.  Many startups use a variety of methods to raise their seed capital, i.e., money to keep you going until you can get substantially more funding from a private or public offering.  Some of these methods include: personal savings, credit cards, bank loans, SBA loans, home equity, cashing out life insurance policies, grants, donations via social media, angel investors and so forth. 
   1. To most startups, getting angel investors seems like a terrifying and mysterious process but actually it’s merely tedious. Angel investors are typically wealthy individuals who seek companies to invest in and mentor.  Angel investor networks are a good place to start looking for these individuals. These national and local groups of angels meet — formally or informally — to discuss deals and learn about the best new business opportunities. 
   2.  At the seed stage, angels don’t expect you to have an elaborate business plan and most know that they’re supposed to make their funding decisions quickly.  It’s not unusual to get a check within a month or two based on a simple agreement and a good PowerPoint Deck (check out our blog on PowerPoint Decks here).  Some angels may be satisfied with a demo and a verbal description of what you plan to do, but many will want a copy of your PowerPoint Deck, if only to remind themselves what they invested in.
4. Additional Funding and Venture Capitalists – The next round of funding is the one in which you might deal with actual venture capital firms, but don’t wait until you’ve burned through your last round of seed funding to start approaching them. VCs are slow to make up their minds and can take months to make a final decision. You don’t want to be running out of money while you’re trying to negotiate with them.
   1. Getting money from an actual VC firm is a bigger deal than getting money from an angel. The amounts of money involved are usually larger, so the deals take longer, dilute you more and impose more onerous conditions.  Actually, you have more leverage negotiating with VCs than you realize and the reason for this is other VCs.  When you talk to them you realize that it’s a seller’s market.  Even now, despite the economy, there is too much money chasing too few good deals.
   2. You may wonder how much to tell VCs and you should, because some of them may one day be funding your competitors. The best plan is not to be overtly secretive, but not to tell them everything either. After all, as most VCs say, they’re more interested in the people than the ideas. The main reason they want to talk about your idea is to judge you, not the idea. So as long as you seem like you know what you’re doing, you can probably keep a few things back from them.
   3. Talk to as many VCs as you can, even if you don’t want their money, because a) they may be on the board of someone who will buy you, and b) if you seem impressive, they’ll be discouraged from investing in your competitors. The most efficient way to reach VCs is by networking to the partners via their trusted business associates.
   4. These are also VC Pitch Events and many on-line companies host them.  FundingPost.com for example, hosts VC and Angel events in 20 cities across the U.S. and there are many other companies doing the same.  In addition, you should go online and research which VC firms – and which individuals at those firms – are likely to be the most receptive to your pitch.  Ask your lawyer, accountant or other entrepreneurs for an introduction and start networking!

Getting funding for your business doesn’t have to be as complicated or mysterious as you may think.  Some simple research, a little bit of education and knowing what you need are the three most important steps in starting to solve the funding puzzle.  Don’t be afraid to ask a professional for help either, after all they do this every day!  There are many companies like The Brode Group that specialize in helping businesses get the funding they need for their companies.

If you like this information, you’ll really like “Top 10 Mistakes That Cause Investors to Shoot Down Deals”.

About the author:  David Brode is the Principal of the Brode Group. An economist by training, Brode has over two decades of experience helping ventures develop and communicate business strategies through financial models so they can launch, grow, and sell businesses.  Brode’s financial forecasting models have been through due diligence dozens of times and have been successful in securing over $11 billion in financing for projects worldwide.  Brode has a B.A. degree in Economics from the University of Michigan.