The Four Keys to Raising Capital
Address these four points clearly and confidently, and your investors are likely to buy in.
It's
no secret that raising capital to grow your business or invest in
property has become harder. Traditional lenders are requiring you to
jump through more hoops, and they are applying less attractive terms
after all the jumping is over. Private lenders and investors are more
cautious and have upped their standards, as well. What's a businesswoman
to do?
It's Simply Common (Business) Sense
It's actually not the mystery that many make it out to be. More than anything, good common business sense will prevail. It's often said that the key to raising capital is a person's ability to sell. Selling is a crucial skill for any entrepreneur. When it comes to raising capital, the question is "What are you selling?" In other words, what is the lender or investor looking for?
The key to raising money, whether it's to start or expand your business or to purchase and operate a rental property, comes down to four factors.
It's actually not the mystery that many make it out to be. More than anything, good common business sense will prevail. It's often said that the key to raising capital is a person's ability to sell. Selling is a crucial skill for any entrepreneur. When it comes to raising capital, the question is "What are you selling?" In other words, what is the lender or investor looking for?
The key to raising money, whether it's to start or expand your business or to purchase and operate a rental property, comes down to four factors.
If
you can show a prospective lender or investor that you have command
over these four pieces of the puzzle, then selling will not be an issue,
and you will attract more money than you thought possible.
The first time I raised money for my business, I wasn't aware of these four gems, so much of my sales pitch to prospective investors was based on BS--blue sky. The "sell" was much more difficult because 1) I didn't know what the investor was looking for and 2) I relied solely on my persuasion skills instead of sound business sense. Even though it was much more difficult, I was still able to raise a quarter of a million dollars from 10 investors. And in the end, every investor got his or her initial investment back and made an excellent return on that investment. The process today, whether I'm the one raising the money or people want money from me, is much more efficient and leads to better results.
The Overall 'Want' of a Lender or Investor
The what-I-want umbrella covering any deal an investor is considering is that she wants a healthy return on her investment. If I give you X dollars, then how much money will I get back? That's the overall want of an investor.
The what-I-want umbrella covering any deal an investor is considering is that she wants a healthy return on her investment. If I give you X dollars, then how much money will I get back? That's the overall want of an investor.
(Note:
When I refer to a "lender or investor," I am referring to anyone or
anything from a traditional bank or lending institution to a private
organization or an individual. The same criteria apply no matter whom
you are approaching for capital.)
Music to an Investor's Ear
A presentation should not be long or complex. It will differ depending on the business or investment involved. Often when a "pitch" is short and concise, it reflects that the people presenting it are confident in knowing what the investor wants and secure that they can deliver it.
A presentation should not be long or complex. It will differ depending on the business or investment involved. Often when a "pitch" is short and concise, it reflects that the people presenting it are confident in knowing what the investor wants and secure that they can deliver it.
Let's take a closer look at the four key factors:
Investors
want to know who's running the day-to-day operations. This is key to
the ongoing success of any venture. What is the experience level of the
management team? Who are they? What are their backgrounds? What makes
them vital to the success of this project or business?
If
you are starting your own business or if you're raising money to grow
your existing business, then the partners and the management team may be
the same people. That's not a problem at all, given experience and
expertise on the team that the investor has confidence in.
How It Plays Out in Real Life
Let me give you a real-life example of how this formula works.
Let me give you a real-life example of how this formula works.
My
husband, Robert, and I were approached by a friend about an investment
opportunity. We knew this gentleman personally but had not done any
business dealings with him. He is very well-respected in the business
community.
Here is what he told us:
"This
is the investment--an Arizona landmark resort with three golf courses
plus two additional golf courses from a second as-prestigious resort. It
has gone into foreclosure and we are certain we can purchase it for
about 25 percent of what the previous owner put into the property." (The
Project)
"My
two partners and I are purchasing this investment. This is the 54th
venture we've done together. Here is a list of those projects and the
results. You know of one of my partners, Mr. XYZ." (Just about everyone
in town, and beyond, knows of this man. He is a business legend.) "We've
been actively searching for three years for a great project, and we
feel this is the one." (The Partners)
"We
are raising 10 percent of the purchase price as a down payment. Two
pension funds are putting up X number of dollars, and the bank that has
foreclosed on the property is financing the rest of it. You can
conservatively expect a return of X percent on your investment, and you
should have all your money back within three to four years." (The
Financing)
"As
to the management (at this point he drops a four-inch binder on the
table that falls with a thud), this is the company that will be managing
the hotel. It also operates the ABC and MNO resorts." He then drops a
second four-inch binder on the table. "This is the company that will
manage the golf courses. There is a listing of the other golf course it
manages. We've checked out both of these companies thoroughly." (The
Management)
"That's the investment. What do you think?"
What We Thought
It took us all of five minutes to say, "Count us in." Here is the beauty of our friend's approach: This is a multimillion-dollar venture. He could have gone into all sorts of graphs, figures, projections and data. He could have spent hours telling us about what a great deal this was. Instead, he took all of 10 minutes, answered the four key issues, and five minutes later we had a deal.
It took us all of five minutes to say, "Count us in." Here is the beauty of our friend's approach: This is a multimillion-dollar venture. He could have gone into all sorts of graphs, figures, projections and data. He could have spent hours telling us about what a great deal this was. Instead, he took all of 10 minutes, answered the four key issues, and five minutes later we had a deal.
Raising
capital does not have to be a laborious, drawn-out affair. If you can
keep it to the four key points and provide your investor with
confidence, then money will flow to you.
Oh, just one last point--you'd better deliver.
For more on pitching investors, see "Improve Your Odds of Getting Funded."
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