A capital raising is fundamentally a social movement.
If you communicate clearly, win followers and have a unique insight people can get excited about, the money will follow.
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Getting target investors involved in the journey in a real way is a great first step to successfully raising capital.
1. Make sure the investor is the right fit
Even with a good track record and a strong business case, perhaps only 1–2% of target investors will convert and actually invest. Even if the investment opportunity is objectively great you are likely to need 10 to 20 times the number of investors you think you may need.
The investors will need to like the leadership team on a personal level and understand enough of what your business does to see why it will be successful. They may need to sell it to an investment committee, an asset consultant, an investment advisor, a family or a board.
The investors will need to have sufficient liquidity when you ask and despite their stated wealth, many investors and funds may not have cash sitting ready to invest. Your business will also need to fit into a broader portfolio, diversification or risk management strategy. Their fund may have reached the limit of its investment exposure to your market segment or your company’s life stage.
2. Keep it consistent
Consistency is king – your target investors will often not be subject matter experts, or have time to learn much about your company or the market in which it operates.
When someone is evaluating a subject they don’t understand, it is simplest to look for internal consistency and infer that inconsistency is a sign of problems.
Try to keep your investment documents focused, interesting and clear. Explain why your team is the best to be tackling this opportunity with the skills, networks, insights and work ethic to make the company successful.
Make your story simple, focused and sticky. Is your vision bold? Is it significant? People are irrational and will choose things that are big over things that are small so frame your story in the most exciting way possible.
Speak to investors early and jointly develop an information memorandum. The more you know about what they like and are looking for, the better you’ll be able to tailor the message for them.
3. Ask for the right amount of money
Raising capital requires the same efforts regardless of the size of the round.
Generally, it’s best to raise double what you think you need. You need to buy yourself at least 18 months of runway.
Technology builds take longer and cost more than you think. Sales strategies might be well considered and even tested but they might also rely on good sales people. Hiring good sales people is notoriously difficult it may take you two or three hires to get the right person for the role.
You need to give yourself plenty of time to make some mistakes and still have enough time to succeed.
4. Find the right kind of help
Many people can help you in your quest to raise capital – just stay away from unproven intermediaries.
Ask hard questions of their track record and do your own due diligence on them.
Many companies with “capital” in their name do not have capital to invest. Ask how much they have invested in the last twelve months, ask about the kinds of companies and markets in which they have invested, and ask to speak with some of the entrepreneurs they have invested with.
You should make sure they back themselves to complete the task. Ideally, they would convert any fees payable into equity, as opposed to taking cash.
Be very wary of anyone taking money upfront, or any cash payments not linked to success. Make sure they are making money in the same direction as you.
5. Build relationships
Reaching out to professional venture investors such as VC firms is easy; it’s their job to find and invest with entrepreneurs.
I wouldn’t recommend submitting pitches through websites or sending cold emails as it’s better to build a relationship with some of the staff at the company.
Perhaps start with the more junior staff at the firm, build the relationship with them and ask them to set up a meeting with some of the more senior decision-makers. The deal will be taken more seriously this way. Reach out via LinkedIn, or attend an event sponsored or attended by the firm. Ask other entrepreneurs for introductions or advice as to how to get into contact and visit or join co-working spaces or entrepreneurial hubs.
Most people in the entrepreneurial ecosystem have a great story to tell and have connections to other interesting and useful people. It’s OK to ask them for help and introductions.
Corporate executives who work in a relevant sector would also be good to speak with. They can act as mentors and advisors to help you refine your pitch and business model, make introductions to investors, invest themselves or lead a club of smaller investors, and introduce you to corporate investors or corporate venture funds.
Angel groups in Australia do not regularly make investments so they are not a good place to start.
While it’s also our preference at Trimantium Capital that you would come through a referral from a trusted connection, we review every deal and will – at the very least – give you a quick answer. I recommend reaching out to us for feedback.
Phillip Kingston is the founder of venture capital and investment firm Trimantium Capital, and a technology entrepreneur and investor. You can follow him on Twitter here.