One of the most difficult aspects of entrepreneurship is raising the capital required to get a business off the ground. For young entrepreneurs new to the business world, there are some ways to make the task a little less daunting. The most important thing to remember is that VCs invest in you. Even for the best business plans, they have to really believe the entrepreneur is smart, passionate, determined, and committed to making the company a success. Smart investors know that great plans fail or succeed many times because of the entrepreneur.
Wisdom teaches that fundraising is a process in which determined entrepreneurs can stack the odds in their favor. Here are three basic rules to have an unfair advantage.
The first tip is don’t be a lone ranger. Get a great group of advisors to help. These are the men and women who will help enlarge your network and facilitate access to the investors and people of influence that can help your business grow. Along the way, they will help advise you on your business plan and shore up any areas that are soft and need to be strengthened.
Once an entrepreneur is ready to talk to investors, the next tip is to approach a targeted set of investors – don’t let it be random. You will have already spent time preparing the best investor presentation possible and your advisors will have helped by pointing out the problems in a business plan, and they will pick it apart in ways you’ve never imagined. But now you are ready and you need to focus on those investors that are likely to fund your deal. They need to have money, like your industry, be comfortable with your stage, and have not invested in your competitors. So while you are getting your presentation ready, do the research and find out who are the 30 best investors for your deal.
Finally, when the time comes to talk to VCs, follow the “10-5-3-1” rule. Do new meetings until you have 10 great first meetings with your targeted VCs. Keep working on those “great first meetings” with VCs until you have 5 of them doing due diligence on your deal. Finally, don’t’ stop talking to those 5 due diligence VCs until you have 3 term sheets. Ultimately, secure the close with at least 1 VC wiring you money and helping you get your business off the ground and up and running.
I know how challenging it can be to raise the capital required to open a business. That is why I’ve been following these very same entrepreneurship tips since 1997. I am confident they’re effective, so if you want your business to have a fighting chance in the rough and tumble world of securing venture capital, you should follow them as well.