Raising capital may be the hardest thing you ever have to do in your business career. So, if you've decided to raise outside capital for your business, let me provide some guidance, borne of mine, my investors, and my clients' experience.
Outside investment in your business, is way more than about capital. You are bringing a partner into your business that has long-term implications. That relationship has to bring a “value-add” beyond just capital.
Cash for your business is like food for your body. It is the fuel that enables growth. But, like the body, without sufficient food and a proper diet, a business without sufficient cash and cash management will not only not grow, but could die!
Here are seven key criteria most investors care about. Using the metaphor from the 2016 re-make of one of the greatest Westerns to grace a movie screen, “The Magnificent Seven,” introducing “The Magnificent Seven of Entrepreneurial Investment.”
Instead of wasting countless hours with business plans and pitch decks, startup entrepreneurs should be focused how to prove their business concept and how it can make money. No investor funds an idea.
Starting a business and raising capital are two, mutually exclusive, endeavors. Yet, many entrepreneurs are under the mistaken belief that you can't have one without the other. You need capital to grow your business, but it comes with a price.
Marshall McLuhan, a renowned philosopher of communication, coined the phrase "the medium is the message." Nowhere is that more relevant than in an investor presentation. A bad presentation can kill a great product, blowing an opportunity for investment.
That sounds like professional investors don't want risk. There's nothing further from the truth. They invest in high risk ventures in hopes of generating significant returns. However, there's a difference between "prudent risk" and a "lottery ticket!"
Most entrepreneurs watch every penny, especially early on. But there's difference between being fiscally conservative and just plain old "cheap!" Knowing what you're "really" paying and "really" getting in return with employees and suppliers is critical.
Because you need capital to grow is not a good answer. Nor is a "kick-ass" business model. Or because you're such a passionate entrepreneur,or such a great visionary. It's because the investor believes they can make money with your business. Period!
To grow your business beyond what you can generate from cash flow, at some point, you'll probably need to raise capital to better fund your business. Guesses, wishes and dreams won't make it happen, but they, often, drive the capital raising process.
Raising outside capital is, difficult, to the point of highly improbable. Yet, it remains one of the most arcane, underestimated and misunderstood processes an entrepreneur can undertake. But, most important, it is not a necessity for your success.
Managing cash is the single most important thing an entrepreneur must learn to be successful. But many are so intent on closely managing the nickels and dimes, especially when things get a little tense, that they miss dollars rolling out their back door.
Pretty simple system for a pretty simple business. No employees. Low-priced/low cost products. He never tracked how much he made on newspapers, cigarettes, candy or gum. He didn't care as long as he was taking in more than he was paying out
Today, we'll address an increasingly critical problem -cash management - controlling collections and payments. It's one thing to cause a cash generation event (a sale), another entirely to collect on that event.
Cash flow, its generation, its conservation and, overall, its management is the single most important discipline an entrepreneur must learn to be truly successful. And of these, cash generation is the most important. From day one, it is the lifeblood...