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Updated by Douglas Johnson on Aug 07, 2018
Headline for Ten Points to Remember When Raising Capital
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Ten Points to Remember When Raising Capital

The basic tenets of outside funding are as relevant to venture startups as emerging fund managers. Consider these issues when raising capital. In our experience, far too many professionals assume that the process is compact and administrative. Better to think in terms of an asset-gathering arc that stretches for six-to-twelve months. There are many pitfalls along the way.



Define Your Budget

Raising capital takes time and resources. Do not short-change the process. You need cash because the energy that is required to push forward is probably not the best use of your own skills. In a strict sense, your responsibility is to your day-to-day commercial affairs, not the external demands of profiling and engaging potential investors. Just as you have a rightsized budget for technology, you should have a budget for corporate development.


Understand the Sales Cycle

You may be gathering external funds, but that process is largely a sales function. Short of opportunistic situations, you will need to walk potential investors through awareness of your needs and educate them about the opportunity. Be prepared to invest strategically in an array of marketing material to get you through those steps, including white papers and earned media. That work should lead to their belief in your efforts. Read a book or two about business-to-business sales.


Reach Beyond Your Backyard

First-round cash for startups ventures and investment funds usually comes from family and friends, but not always. Affinity is a powerful motivator. Gauge those capital sources that may have a tie to your particular industry sector or investment strategy. The effort will likely require extensive candidate research. We once identified an investor for a real-estate project because he attended a nearby university.


Learn about Search Engine Optimization

Most due diligence begins with Make sure to look at your company and its executives through the lens of a search engine. Far too many people will believe what they read on the internet without being critical. It is often possible to remove information that is factually incorrect at source or at least bury news that portrays your efforts in a substandard way. In a similar vein, make sure social-media profiles are robust and up-to-date.


Load Your Toolbox

A single presentation document is useful as a follow-up device for an in-person meeting or a teleconference, but it is almost always insufficient. Proprietary due-diligence documentation is far more important. A thorough disclosure manual may take weeks to complete properly; you may want to hire an outside resource to do the work on an arms-length basis. Without distorting facts, you want to shape information so that it appears in the best possible light.


Triple-Check Data for Accuracy

Few things will lose an investor faster than bad data. Startup projections are rarely believable, even under the best scenario. Be certain you can defend the numbers. The equivalent demand for investment-fund managers is to ensure that your track record is appropriately footnoted so that it can stand without narrative. Valuation estimates, if relevant, should be confirmed by a third-party. And update general economic and market data from time-to-time so that it does not appear stale. You do not want to undercut the strength of your argument.


Priortize Your Graphic and Written Vocabulary

Designers and writers are accessible and affordable. Use them. Issues like fonts, colors, and layouts may seem extraneous, but they do matter. Have you ever thought about why JP Morgan Chase uses blue for its corporate identify? Blue is the color of trust. Likewise, do not assume that your talents can be redeployed to write a white paper relevant to your marketing needs over a weekend. Writing is as much a skill as any sport activity.


Beware of 'Happy Ear' Syndrome

Most people want to avoid confrontation. As a result, few investors will tell you that your startup will likely fail or your investment fund is pointless. Listen precisely to what you hear during a meeting. "I'll have my due-diligence team look closer at the opportunity" does not mean you will see a cash transfer next week. It could simply mean, "Thank you for coming. This is the most polite way that I know to get rid of you."


Distant Yourself from Rejection

Entrepreneurs and asset managers often over-personalize the capital-raising process. It is not about you, but whether the potential investor feels that your opportunity meets his needs or solves a greater problem. The moment you consider rejection to be a verdict on your own self-worth is the moment that it is time to step away from the process. You want to approach this task with confidence.


Forget about the Free Lunch

There are many third-party vendors who will agree to find investors on a commission-only basis. Be cautious and discerning. You are only interesting to those service providers until a better deal comes along. And there is always a better deal. Still another problem is how your brand and reputation are handled in the investor marketplace. In most cases, you actually need a relationship expert, not a telephone jockey. Raising capital is not a clerical task.