Raising money for business can be a very useful and potential litigious activity if not done properly. It is important to keep certain rules/laws in mind so that you and your potential investor(s) are on the same page throughout the entire process. Raising venture capital from business angels or a venture capital firm is no easy task however, but it is possible with all the right ingredients.
Seven Essential Rules When Raising Money
1. Always have a complete, written, professional business plan.
2. Always tell the potential investor that the worst case scenario is that they can lose their money.
3. Make sure your assumptions section of your business plan is extensive, accurate, and professional.
4. Have a CPA (Certified Public Accountant) prepare your cash flow projections using the NPV (Net Present Value) break-even point.
5. Dress conservatively. Men wear a blue suit, white shirt, and a red tie, for example.
6. Be confident and look them directly in the eye when presenting to U.S. prospects.
7. Have your attorney review any agreement before signing.
When presenting to an l investor always have your written business plan with you and use it during your meeting with your prospective investor. This is extremely important. When the investor asks to see your business plan, you better have one or you are dead in the water. Not having one is truly a deal killer. If you are empty-handed, you will look amateurish and hurt your credibility. Not having a business plan is like showing up to play football and purposely leaving the football at home. It is your most valuable and most essential tool set when seeking money for business.
Cash for business when you start up and continuous cash flow are two of the most critical factors that determine whether you survive long enough to have a chance to thrive and become profitable. The old adage “cash is king” holds very true here; it is liken unto a beating heart, if it stops, you are no longer living. If your cash flow stops or you run out of cash for business operations, then you are out of business. Often times business angels will agree to provide initial and future funds for business. Future funds for your business are often tied to benchmarks that you will set together when you start your financial relationship.
When dealing with private investors (angel investors), they already know that the worst case scenario is that they could lose their money. If you do not acknowledge this well known fact as being true, they may feel that you are deceiving them, and rightfully so. By getting this out in the open, you become a truth-teller, an honest broker, and as such, more trustworthy.
The assumptions section of your plan is your logic, reasoning, and basis for your conclusions. This shows the potential investor how you think, what you know, and how well you can apply what you know to a business situation. This section is a double-edged-sword. It can be your best friend if you are savvy and know what you are doing, or it can be your worst nightmare if your assumptions are grounded in fantasy instead of fact. The cash flow projections are also a particularly important part of your business plan and should be prepared by a CPA.
The conservative dress mentioned in rule number 5 has been studied and found to increase your ratio of sales closed to number of presentations given. Go with what works, regardless of the urge to dress differently. Be confident and look them in the eye for U.S. prospects. There are other cultures that you should not look in the eye as much, so do your homework if presenting to international prospects and find out their culture norms in advance. This paints a positive picture in your U.S. prospect’s mind, one of confidence, sureness, and honesty.
Have any agreements that your private investor (angel) may offer reviewed by an attorney before you consider signing. Do not fall victim to the pressure of urgency. Take a day to think it over and present it to your attorney. You will look more intelligent to them and will be able to make a much more informed decision.