Raising capital is always on an entrepreneurs’ mind.
While there is no scientific method to raising capital, there are definitely ways to make the process less grueling and more likely to occur.
1. Traction is crucial: Traction is the most important factor when raising capital. After all, if you can objectively prove that there is a market for whatever it is you’re creating, you are likely going to get an investment. Traction can be anything from revenue to users (example: app downloads, subscribers, etc.) to even website traffic. Show the investor why it is that they should invest in your company by presenting them with numbers. The bigger the numbers, the better.
2. Know how much to raise: Investors will take you much more seriously if you have an “ask” along with a “use of proceeds.” The “ask” is going to be how much you are raising, at what valuation and what the overall terms are (example: $100k for 10 percent at $1MM valuation). How you will use the money that you are raising is the “use of proceeds.” If you can combine your proven traction with your “ask” and “use of proceeds” information, you might be on your way to raising capital.
3. Know your investor: Knowing what the investor or venture firm typically invests in and how much is significant. Don’t go to a venture firm that invests in health care asking for $50k for your “tinder for clothing” app. Don’t go to a venture firm that invests millions in mobile apps at the growth stage, when you only have 1,000 users for your “tinder for clothes” app. Knowing the “sweet spot” of each investor is your key to success when targeting an investment.
4. Don’t shoot in the dark: If you’re seriously emailing any venture capital firms and the beginning of their email address is, “[email protected]” you need to stop. The best way to get an investors attention is to get a warm introduction. Really the best way to get an investor’s attention is through traction but for this argument, having someone in the investors network refer you will likely spark their interest. Be human about the process. You wouldn’t want some random person coming to you asking for money, yet if your best friend introduced you to someone with this “really great idea” then the whole game changes.
5. Understand the game: Raising funds can be a long process but understanding that the process is about relationships, objective results and future hypotheses is paramount. Make your pitch compelling. Make the investor want to throw money at you by showing them results or even proven, market validation. It’s not easy to get an investment, but if you understand the process better and “think like an investor” you will increase your chances.
If you have always been thinking about starting a company, stop thinking and start doing. Figure out a way to just do it. Not having enough capital will always be a problem for most people but those that succeed figure out a way to make it happen. Find an excuse to win.
If you have a service-based business like mine, don’t let Murphy’s law (everything that can go wrong, will go wrong) stop you. If I were to come to you 100 years ago for an investment and tell you that I am going to put people in metal tubes and hurl them 500mph from Los Angeles to New York in five hours, you would most likely look me in the eyes and immediately tell me to leave. Today, almost 1 percent of world GDP is spent on air travel, totaling almost $750 billion (IATA). Don’t be afraid to think big and just go for it!
Lastly, just when you think you’ll never get an investment, refer to: https://medium.com/@bchesky/7-rejections-7d894cbaa084#.obhtzr2t3
Zachary Martin is a Southern California native and alumnus from the University of Miami (FL) and Draper University in Silicon Valley. He has been involved with startups since he was 18 years old. He is the founder and CEO of LoilApp.com and also works part-time as the community manager for the Irvine Company’s entrepreneurship hub, The Vine.