When running a young social enterprise that manifests itself as a business, there may be a time when you need to raise some money to continue your operations. Raising money, especially if you are located in a place like Silicon Valley, is a lot easier than somewhere like South Dakota. There are several key tips to keep in mind, and there are many tricks to the trade, but below are the most important bits of information.
What type of money can I raise?
Friends and Family: If you are just trying to get your idea off the ground, don't need a lot of money, and is something you would like to get your family involved with, this may be the easiest route to go. It is very important to note, though, that there is not much that is easier to break relationships in a family than borrowing money. While they are sometimes more forgiving than the bank, it is important that you treat money received from family and friends in a very professional and trustworthy manner.
Bank: For some organizations, the bank will be willing to loan money, but it is very hesitant to do so. This is especially true if there isn't some form of physical item that can secure the loan in case the business fails. By having a physical item such as a house or car, the bank can collect on the loan by seizing and selling the item.
Angel Investor: Angel investors are great for businesses that require about $1 million in capital or less. These individuals usually have business experience themselves, know other angel investors who have valuable skills, and a network of contacts who could help grow and/or develop your business.
Venture Capitalist: Venture Capitalists are for later stage organizations or for those who need large sums of money to get started. VC's usually don't get involved with startups until they need more than $1 million. Companies like Facebook fit this profile, for example.
How do I raise money?
Most of the information below for raising money have been learned from and apply to angels and venture capitals, but they can also be used for friends and family as well as banks. The best way to handle the latter two is to choose the elements that make sense and fit the audience.
- Create your Personal/Team Pitch - The single most important thing investors look for is great people. You should show that you are one such great person and that you can lead a company to success. There are ten characteristics that are important to show somehow in your presentation, and they are: integrity, passion, experience, domain expertise, skills, leadership, commitment, vision, realism, and coachability (this last one is for angels and venture capitalists).
- Create a Great Presentation - Any powerpoint should be very short and concise. The best example is that of Steve Jobs, and any web search for videos of presentations will be helpful. Short bullet points are good, simple headlines are better, and only images are the best. The presentation format should be as follows: company logo, business overview, management team, market, product, business model, strategic relationships, competition, barriers to entry, financial overview, use of proceeds, and finally capital and valuation.
- Find Investors That Fit - One commonly overlooked factor is finding investors who are interested or care about the same industry that your organization is operating in. The investor should act as a partner because they have a vested interest in seeing your organization succeed. Having someone with domain knowledge would be extremely valuable.
Giving the Pitch - Your pitch should start like a rocket and get their attention. Have a very solid upward path and then knock them out of the park when you conclude. Here are some tips to give a great presentation:
- Always Use Presenter Mode - If you are using the Mac presentation software, Keynote, make sure to use the 'presenter mode.' The reason is that it gives you important information such as how long you have been talking, what your next slide is, and any notes you have stored for the current slide. There are also many programs online that can be downloaded to fit this purpose if you aren't using Keynote.
- Always Use a Remote Control - You want to be making eye contact with the investors at all time, not fiddling with and looking at your computer.
- Handouts Are NOT the Presentation - Any handouts you provide to the investors should be something they can look at for a general overview and then take notes on. If it is the presentation, they will simply read it and not listen to you.
- Don't Read Your Presentation - This should be obvious. Any teacher who simply reads from the book is completely boring, but someone who adds value to the key points will grab your attention.
- Never Ever Look at the Screen - This is a big rule that is often violated. There should be no reason why you should look at your screen as you should be focused on the investors.
- Rinse and Repeat - If the first investor you talk to doesn't bite, don't worry. Many succesful companies got started only after giving their pitch to 20+ investors before one finally agreed to invest. Try and learn something from each pitch and incorporate it into the next.
While raising money is one of the harder things to do in an organization, it is also obviously one of the most important things to do. One final bit of advice to keep in mind is that your organization should be raising money when it doesn't need it. The reason being is that when your organization is looking good and being viewed as a success, investors want to have a part of that success. On the flip side, if you need money, investors will also know this is a good time to lend money on even better terms for themselves. Overall, do what fits with your organizations, and try to create as many synergies as possible to make raising money advantageous in many ways.
Rose, David. TED Talks. "10 Things to Know Before You Pitch a VC for Money." Page Online. April 2009.