Let’s face it, as an entrepreneur you can never get enough capital. Uber is a current day example of this mantra with its tens of billions raised. By and large, regardless of what business sector, industry or what part of its life-cycle, cash is a dear asset and frequently one in short supply. How can you be successful at raising capital?
This article focuses on the key factors that enable an entrepreneur to raise capital successfully.
Timing, Timing, Timing
When should you start raising capital as a venture leader? The short answer is it depends upon your particular circumstances. It’s always best to align your fundraising with specific activities or milestones of your venture. In general, the further you can get along in your business and product plans before raising capital, the better off you will be from a retaining equity in the venture perspective. In other words, the more that you’ve built in terms of a business and product, the greater the valuation of the venture and the lower your cost of capital will be overall.
That said, sometimes you need an infusion of capital early on to help you realize key parts of your business plan. Or perhaps you don’t have the resources to develop your product and without that moving on to larger rounds can’t happen. In circumstances like these, the approach would be to go out for capital earlier rather than later. However, be aware that this approach is viable but will likely cost dearly when it comes to retaining your equity in the venture. The key question of timing for raising capital is purely dependent upon your venture’s life-cycle. Where do you go from here? What are the best practices for managing capital?
Get a Chief Money Person
Appoint or recruit a full-time person responsible for raising capital in your organization. Ignore this counsel at your own peril. Many companies make the mistake of sharing this responsibility among multiple individuals — where everyone “does their part”. Unfortunately, this typically means that no one does anything concrete toward raising capital until the situation becomes dire and, without a single person bearing the responsibility, the ball gets dropped.
No business can run without capital or revenue to support its operations and, if your organization is an early stage startup, it may not have the revenues and instead relies heavily on capital. Some organizations seek to outsource this to “finders” or others who can “round up” capital. This is a natural reaction to avoid having to burden your own organization with this effort and potentially distract a core team with this time intensive exercise. However, no outside agent knows your organization the way you and your team do, nor can they sell it as effectively as your team can. This greatly reduces their effectiveness and can elongate cycle times to raise capital.
If you must bring in outside counsel or support to help with the process of raising capital, make sure you hire them for what they can bring to this process today, not what they’ve done in the past, and ALWAYS, ALWAYS retain full control of the fund raising process and drive it accordingly.
Never Stop Raising Capital
Raising capital is an ongoing activity. Many large organizations and even those that are publicly traded go to the equity markets, long after years of profitable operation, to raise capital for specific activities, expansions or functions. Every entrepreneur knows that the fundraising process never really ends.
Oftentimes startup entrepreneurs make the mistake of thinking that after their “last” raise or a particularly “big one” that they are done with the process and that was their final raise of capital. This is almost never the case. Even if they don’t go back to the VC circuit to raise capital, they will undoubtedly aspire to go public or have some other exit event, which essentially puts them back in that same “mode” of raising capital.
The best model for raising capital is to continue your funding and related efforts at a continued base-line level as long as you are open for business, with the flexibility to ramp up when going into a major milestone which will require a fundraising event. Keeping that basal level of fundraising activity will ensure that your venture is continually in front of your target sources of capital on a regular basis, which greatly increases your odds of quickly raising capital when you need it most. Don’t wait until your bank account only has 6 digits to go out looking for capital!
Next week’s blog will be a deeper dive into the three key principles of fundraising. Until then, keep scheming and keep dreaming big!
About this blog The goal of this blog is to share my experiences, to capture and reveal valuable insights, and to draw from my serial entrepreneur-ship through 7 ventures over the past 20 years. I have encountered many impressive entrepreneurs along the way and I hope to share our collective experience with you to help teach and perhaps motivate you to launch your own B2B or B2C enterprise.
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