Breaking down your options for fundraising

Perhaps the most important skill of an entrepreneur or a leader of a growing company is fundraising. Asking people to give you their money is tough and not for the meek, mild mannered or the faint of heart.

When I advise entrepreneurs on their investor slide deck, I always insist on a summary at the end — a short set of slides addressing the key “why you should give me your money” question.

The growth stage sets the strategy

When looking for capital, the most likely and logical sources depend on where you are in your growth.

If a company is in the concept or development early stages, funds from grants, friends and family, foundations and economic development organizations are the best bet. In the early growth stages, there is still overlap with economic development organizations and grants, but then avenues begin to open in angel capital groups and family office groups.

Each have investment criterion and preferred industry segments, so a fundraiser must know those going in. He or she must get their attention to even get to pitch the investment opportunity.

When a company gets to later growth stages and revenue generation, doors open into the deep, dark hole of venture capital organizations. These are the most seasoned and savvy investors, and their money “talks.” In any event, if you want their money, you still must answer that “key question” and it gets a little tougher. You will likely need to give up more equity and maybe even your “first born,” which some might not mind…

A breakdown of your sources

Back to the beginning, grants are normally “free money” with no hooks into equity, but the application process is demanding and can be lengthy. There are federal, state, local and foundation grants available, and each have their requirements. Typically, experienced help in this process is advisable. For the cost, it increases the chance of success and cuts down the time considerably.

Next comes friends and family, and economic development organizations, which are plentiful in the Commonwealth of Pennsylvania. These groups, like the Ben Franklins and the Life Sciences Greenhouses, also are helpful in obtaining funding from others. With a good business plan, including market analysis, growth financials and an exit scenario, doors can be opened.

Other non-venture funding comes from family office groups, private equity firms and angel capital organizations. They all need to be treated as sophisticated investors, because that is who makes up their investor base.

Most funding comes from angel capital and VC organizations. Angel capital groups invest more than $25 billion into companies, according to the Angel Capital Association, and a PwC Money Tree report found VC invested more than $70 billion.

 

Like my good friend from high school says to me, “it’s not about black or white, it’s all about the green, baby.” And he is right. It comes down to the numbers. Make sure you fully understand them. One slip up, like on an episode of Shark Tank, and investors will show you the exit.

 

John W. Manzetti is the managing director of Manzetti Group LLC. John formed Manzetti Group in 2017 after serving as president, CEO and executive chairman at Pittsburgh Life Sciences Greenhouse. He co-founded JTM LLC, a company revolutionizing the travel experience with a patent-pending AI-based product, DestyDo™. John wrote a book in 2018, “Small Bites of the Elephant” in which he uses straight talk and anecdotes to help small business owners and entrepreneurs address complex business issues.