Loans are great sources of capital
Probability of raising capital these days only 5%
Research as shown that 95% of all attempted capital raisings in the small business sector by first time entrepreneurs, do not reach deal finalization. Of the ones that do actually get funded (cause the idea was too good to pass), the capital is usually raised on the investors terms. Believe me you don’t want to raise capital to fund your idea/business on the back foot.
This makes the capital raising process a nerve racking and unpopular process for would be successful entrepreneurs. Although there are many factors that need to be considered when raising capital, there are 3 major ones that stand out from the rest.
Entrepreneurs struggle with the following issues:
The capital raising system is too traditional and inefficient.
Imagine walking into a bank to try and get a loan, but instead of filling out the banks application form, you bring in your own. You tell the bank how much you want and how great your idea is. How many banks would give you the cash?
Most entrepreneurs go into the capital raising process in this way. They have the idea and the presentation, but they usually present information that is mostly important to them rather than the investor.
An amateur presentation will show a lot more detail about how good the product/service is and less about how the investor will effectively make their money back. The key is finding that balance.
You need to make sure you are ready to raise capital by having the right information displayed to the investor. Being Investor Ready is about developing a system that clearly shows how youplan to use professional investors’ money and when they expect to see that money again.
Entrepreneurs always wait till their desperate to raise capital.
Entrepreneurs have this aptitude of always looking for money when they are desperate for it. The problem with this methodology is that Investors can sense desperation. If you approach them and you seem desperate, they will start asking questions that you may not be ready to answer.
So know the difference between being “ready” to raise capital and the “need” to raise it. You want to show the investor that you are looking for finance based on readiness not by the fact that you need the capital.
A ready entrepreneur shows preparation, knowledge of the process and confidence in the business.
Entrepreneurs are misinformed
We’ve all seen the movies and the tv shows that showcase the ease and availability of capital. The message driven is that if you have a great idea, you can approach anyone and you will get funded. What these movies and tv shows don’t show you are the details that are involved in raising capital. You have to think about agreements, share structures, information memorandums, risk analysis etc..
Get the right advice if you are considering to fund your project. There is a ton of free advice on the Internet, as well as paid content that will give you a better perspective of the process. Don’t forget that depending on the availability of your resources, it can take anywhere from 3 months+ to raise what you need before you begin working on your business.
Finally,
The main reason most entrepreneurs fail to raise capital is they lack the knowledge of the process. If you believe that you own or have an idea/business that needs quick funding then ensure that you are prepared to negotiate your way into a great deal. Raising capital can be a very rewarding and refreshing experience if you are on the same page as the investors and your project is ready to take on new shareholders and funding.
Tags: capital raisings, information memorandum, investor, professional investors, raising capital, struggle
