Asking someone for money is rarely fun and almost never easy. But if you’re trying to grow your business then you’ll almost always reach a point where you need to bring in capital from outside investors. Turns out, going and getting money from strangers isn’t so different from asking your parents for cash.
So here are a 4 simple guidelines that show raising capital is exactly like getting an allowance.
- Ask the right people
I learned early on that any requests around adventures or building things were going to be an easy ask from my Dad. Mom, on the other hand, was quick to fund all my educational and social endeavors. Every idea won’t appeal to every investor so getting the right investors for your business starts with asking the right people.
So how do you attract the right investors to fund your business? The easiest way to find folks that want to invest in you is to talk with a lot of them. Not sure where to start? Browse sites like MeetUp and Eventbrite to find local and relevant social events. These could be networking events, happy hours, or simple breakfast get-togethers. Not everyone is going to be a good fit for you and your business so try to get in front of as many people as possible with your idea. After each connection, ask “What did I learn about my business?” And “What did I learn about my ideal investor?”
2. Ask for the right amount
This is somewhat of a loaded piece of advice. Every parental financial request has a unique range of difficulty that corresponds with the amount you’re asking for. Every family is different, you know your general limits: $20 may be easy to nab but $100 is going to take some convincing.
The same is true for your business. The “right amount” could depend on a number of different factors and be hard to nail down. The best practice is to start with a range based on what sounds feasible with your network and current access to capital. From there, the best way to pick the right amount for your business is to know what you’re going to do with it.
3. Know your stuff (ie have a plan for the capital)
The best way to zero in on the right amount is to know exactly how you’re going to spend it. Investors, like your dad, don’t like handing out money when they don’t know what you’re doing with it. Laying out a pro forma will give you a chance to understand, both for your own and your investors’ benefit, what the investment will be spent on. This also allows you to break out and stack multiple expenses to find out your burn rate over time in addition to the specific line items. Then you can layer that burn directly over your potential revenue to start playing with different funding numbers to see how long of a runway you need to accomplish your goals.
Writing up your costs allows you to run multiple scenarios with different variables. Some may be basic like worst, best, and probable cases; others may take into account more detailed variables such as the costs of customer acquisition supplies and potential partnerships. You’ll have to settle on a specific number you’re trying to raise but thinking through the cost and revenue variables will help you know what your most likely “have-to-have” amount is and how you got to that number.
4. Adjust between pitches
Everyone has heard the insanity definition: repeating the same thing but expecting a different result. Investor and dad chats are no different. If it didn’t work the last 20 times, it might just be that they don’t get it, but there’s also a good chance your model or pitch could use some tweaking.
When investors point out things that don’t make sense in your pitch or ask questions you don’t know the answer to, don’t be afraid to tweak your pitch, value prop, or answers to hit the issues head-on in your next meeting. Instead of viewing meetings that don’t result in an investment as a waste, use them to hone your pitch and be better prepared for the next conversation.
That being said, it’s all about striking a balance. Don’t feel the need to conform to your product or business to individual investors. With most private investing, investors are betting on you more than they are the business. If you disagree with the feedback or have a different vision, stick to your guns; they’ll either respect you and jump on board or they’ll find something more in line with their own values.
Asking someone for money can be a knee-knocker for even the most adventurous. If you follow these best practices though, you’ll learn, adapt and maximize the fundraising cycle so you get the funding you need and take your business to the next level.