How to Raise Money from Investors

Gary C. Bizzo

So, in order to raise capital for your new startup we must make a couple of assumptions. Firstly, do you or your team have a track record in running successful startups? Secondly, do you have a Minimum Viable Product (MVP) also known as a prototype or something to beta test? Thirdly, do you have a clearly defined market that will buy your product? If you can answer two of the three you are ready to find an investor. Hang on!

Investors always want to know the who, what, where, and how of your startup but you need to be ready with the ‘why’ questions. Why are you unique? Why are you doing this and why should they invest in you?

Let’s assume your business idea has a chance to be successful. For you to take it to the next level is tough and demands determination. Looking at pitches from the Shark Tank one of the most common comments when the Sharks ask why the pitchmen need the money is answered with “to take it to the next level.”

Sounds like a canned speech but it’s true. To take it to the next level you may need money. You need to devote 100% of your time to finding the right investor. At this stage your idea is congealed but not solid, you have looked at other resources like banks and family for support but ‘to take it to the next level’ you need their help. There’s no room for part timers here. You will need to spread your thin layer of staff even further so you and your partner or senior exec can devote your full time to the pitch.

To raise money you will need time for finding the right investor, connecting with them, having multiple meetings (the dog and pony show), many follow-ups and even asking for introductions to other investors.

You should travel in pairs to find your investors. One person cannot gather all the facts, catch the nuances of a meeting and prepare for the next meeting without brainstorming help from someone closely attached to the rise or fall of the startup.

Identify your best front man when doing these pitches. If you’re the CEO but not the passionate guy on the team have someone else deliver the pitch - you can answer questions. Bring along a specialist, ideally the finance guy, to go over the numbers but be prepared to answer financial questions as well. Please do not bring the tech guys, they often become vexations to the spirit and bog down an otherwise healthy pitch. Bring them in later to deal with other tech guys when the money is in play.

I sold Encyclopaedia Britannica for one day. Seriously, I was partnered with the top sales guy who took me under his wing. When we started at 9am he told me it might be a very long day. As anticipated we were kicked out of 37 apartment buildings, 42 homes and politely dismissed from others. He told me that it was ‘all about the numbers’ and that he only needed one sale in a hundred to make his commission.

On the 97thdoor at around 6pm, a young man opened the door and to our amazement we saw from the doorway an empty bookcase. He invited us in and the slick salesman made his several hundred-dollar commission in minutes. In the 1970’s that was a great deal of money. He told me it was all about the numbers. As clear as it was then it is today – if you pitch to a few dozen people you will get an investor.

The good, or the bad thing, about seed rounds is that unlike going after a VC, you will probably raise money from many investors. It seems to me to be better to get investors in smaller amounts of money that they are comfortable with possibly losing than going after one VC with all your eggs in his basket.

If you get the meeting with an investor don’t let them weasel out of the meeting with a ‘maybe.’ Get a firm yes or no answer. Make sure you are talking to the guy who makes the decisions before you take a meeting.

Sometimes you won’t get the yes or no answer no matter how much you cajole them. You must keep those guys in your sales funnel. Update them with every shred of information you can, to keep the lines of communication open. I had a guy send me notes and call me for five years before I finally relented and gave him some business.

As for your pitch, make sure it is clear and focused. It will get better as you pitch it more. Just remember if you are using PowerPoint to use bullet points. You’re presentation will come across as more genuine if you address bullet points than a canned speech.

Book a time for your pitch and keep it to a minimum. Give them all the facts and get out! Their time is valuable and if you respect that they will appreciate it.

You must be honest in the presentation. It’s a seed round, after all, they expect you to know most of the answers but the fact that you are seeking money and/or expertise means you don’t have all the answers. You do, however, have to know all the questions. If you’re stuck with a question you can’t answer you need to tell them you don’t know – don’t make things up!

You should realize that investors understand all the issues around seed rounds. You should use your seed round to better position yourself for a Series A financing round later when you have all your ducks in a row and you’re ready to go for the gusto.

Use your seed round to do the things you‘ve been saying in your pitch and allow your company to grow.

The thing with investors is that many have been where you currently find yourself. They understand about the next level, they’ve said the same things you are telling them. They have been there and done that. Come to the meeting prepared and you will find your capital.