Raising Capital in 2002's New Economy" We've helped a number of clients develop business plans and raise capital from "angel" investors, corporate entities and venture capitalists during
last 6-8 years. It's always a daunting process that can be full of pitfalls and require a tremendous amount of work - but it can be done! Here is some perspective gleaned from years of experience.
The most important rule for raising capital to consider is: it's never easy to raise capital when you need to! Meaning, investors are inherently risk aversive, can be very picky (a real understatement!) and they are looking for best deal with greatest upside and minimal risk.
Rule number two - don't raise capital! Self fund your company (called bootstrapping in entrepreneur-speak) by finding customers that will purchase your products and services. This enables you to involve your most important business asset in your business from day one - customers!
Rule number three - use "FAF" or "VMC" methods. Raise seed (early stage) money from your friends and family and/or if you are really committed, pull some cash from a Visa or MasterCard. These methods can and do work for many entrepreneurs - be aware it can be very painful on back end if your company does not make it!
Angel investors can add so much to your company - they can bring "intelligent capital" to business. Not only do they invest capital but will very often take an interest in helping you grow company by taking a Board of Directors seat and/or temporarily assuming a senior management role.
In my experience finding and recruiting a blue chip management team with advanced degrees and a strong corporate pedigree can sometimes kill a startup as quickly as no cash or revenue - yes, they look great in your business plan and venture capitalists love a "strong team." But, you need "fly by seat of their pants" manager/leaders who don't need to grind five sets of scenarios (analysis paralysis) before they can take action - hire entrepreneurial types who've excelled in small companies.
Dealing with venture capitalists can be a significant challenge that is fraught with risk and no upside! Remember, they are highly skilled at entire process, in most cases they've done it hundreds of times before. So, your on their turf when you step into this arena and you better do your homework properly (market size, revenue projections, cost of sales, marketing plan) and/or consult with a consultant, attorney or "angel investor" who has been through process before to give you guidance.
Round two in dealing with venture capitalists (assuming you are one of 1% that submitted a business plan and/or were referred to them by another "VC approved" entity) can also be fraught with risk - know how to value your company (equity for capital), look at comparable deals in marketplace and be prepared to negotiate hard and to give up more now than in last 2-4 years.
