by Seth Temko
Most people I speak with that have never done fundraising are singularly focused on raising a dollar amount. How can I raise X dollars as quickly as possible? I think most "newbies" miss the mark completely when it comes to investment. The first question you should ask yourself is, "What kind of money am I looking for?"
You see your financing partners are just that "partners" in your business. Think of your money partners just like you would any key strategic vendor. If you were hiring a marketing firm would you hire a firm only because they are the cheapest? The answer is, it depends. How big is the project? How critical will they be in the future of your company? Are they performing a routine and low value task? Do they specialize in your industry? The money involved in hiring the vendor is only one part of the answer.
If you want a routine template website created which is low fee then price may be the only real factor. But, if the effort is critical to your business, at least in the current step, then no way is the price the only thing you'll be considering.
I see raising money in the same light. If you're only looking to raise a small amount of money, let's say a couple hundred thousand, then it probably doesn't matter if the money comes from mortgaging your house, "passing the hat" to some wealthy individuals or boworring money from relatives. The assumption here is the money itself is the only critical factor. In the grand scheme of things the amount of money isn't "do or die" to your company or to the investors.
But let's say your in a more critical phase of your company. Let's say you've already bootstrapped for awhile (read about that here) or that you've already raised some smaller capital and future investment has now moved beyond those investors. You really need to think about what you're looking for. Do you need investors that have management skills/talent inhouse you can use? Do you need investors that can fund not just this phase of your company but future phases? Do you need investors that have the connetions to help sell your business or take the business public? Do you need investors that have connections and can open doors into your market? You can see the criteria move beyond just the money. What is the value you need from your inestors?
Finally, what is the ethical and moral character of the funding partner you're seeking? If you're just looking to build and flip a business to maximize financial return in the least time then an aggressive, no nonsense venture capital firm will help you stay focused on that goal. If you're seeking to create a long and lasting brand then you need to find a partner with a track record of funding other companies that have had those goals. At the end of the day you need to meet and understand who would be on your board of directions from those companies and you need to think about how well or not you think you'd be able to work with them. That means you need to interview your funding companies and the people you'd be working with and in some scenarios, working for. You need to due your own due diligence. You need to ask them for references and you need to find out what their reputation is. Check on the profiles of all the partners and find out who is supplying their money that they're managing.
Remember the courtship for money is formal and many times friendly. Once the money is onboard then things get real.
Action Items:
Decide if the only thing you need is money.
Define what value beyond money you need brought to the table.
Create your vetting list for potential funding partners.
Do your homework on potential partners.
Most people I speak with that have never done fundraising are singularly focused on raising a dollar amount. How can I raise X dollars as quickly as possible? I think most "newbies" miss the mark completely when it comes to investment. The first question you should ask yourself is, "What kind of money am I looking for?"
You see your financing partners are just that "partners" in your business. Think of your money partners just like you would any key strategic vendor. If you were hiring a marketing firm would you hire a firm only because they are the cheapest? The answer is, it depends. How big is the project? How critical will they be in the future of your company? Are they performing a routine and low value task? Do they specialize in your industry? The money involved in hiring the vendor is only one part of the answer.
If you want a routine template website created which is low fee then price may be the only real factor. But, if the effort is critical to your business, at least in the current step, then no way is the price the only thing you'll be considering.
I see raising money in the same light. If you're only looking to raise a small amount of money, let's say a couple hundred thousand, then it probably doesn't matter if the money comes from mortgaging your house, "passing the hat" to some wealthy individuals or boworring money from relatives. The assumption here is the money itself is the only critical factor. In the grand scheme of things the amount of money isn't "do or die" to your company or to the investors.
But let's say your in a more critical phase of your company. Let's say you've already bootstrapped for awhile (read about that here) or that you've already raised some smaller capital and future investment has now moved beyond those investors. You really need to think about what you're looking for. Do you need investors that have management skills/talent inhouse you can use? Do you need investors that can fund not just this phase of your company but future phases? Do you need investors that have the connetions to help sell your business or take the business public? Do you need investors that have connections and can open doors into your market? You can see the criteria move beyond just the money. What is the value you need from your inestors?
Finally, what is the ethical and moral character of the funding partner you're seeking? If you're just looking to build and flip a business to maximize financial return in the least time then an aggressive, no nonsense venture capital firm will help you stay focused on that goal. If you're seeking to create a long and lasting brand then you need to find a partner with a track record of funding other companies that have had those goals. At the end of the day you need to meet and understand who would be on your board of directions from those companies and you need to think about how well or not you think you'd be able to work with them. That means you need to interview your funding companies and the people you'd be working with and in some scenarios, working for. You need to due your own due diligence. You need to ask them for references and you need to find out what their reputation is. Check on the profiles of all the partners and find out who is supplying their money that they're managing.
Remember the courtship for money is formal and many times friendly. Once the money is onboard then things get real.
Action Items:
Decide if the only thing you need is money.
Define what value beyond money you need brought to the table.
Create your vetting list for potential funding partners.
Do your homework on potential partners.
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