The Secret to Raising Capital for Your Small Business- It’s About People, Not Money
by Norm Merritt
If you’re struggling to raise capital to fund your small business venture, it could be that you’re taking the wrong approach. It’s time to think people, not banks.
The recession has seen the world of small business loans become increasingly restrictive – and that’s a big problem. There are very few businesses, no matter how insanely high your margins are, that can survive without a sizable initial investment. Costs such as labor, equipment, premises, permits and regulations mount up quickly and it’s all too easy to run short of cash at a vital moment.
We explored alternatives to traditional banks for small business loans in a previous blog post but the truth is this – the real key to raising capital is not building credit, it’s building your network.
Without a solid understanding of how networking and relationships can affect business capital, businesses become dependent on hard-to-come-by bank loans and other short-term funding options. Even if (perhaps especially if) you haven’t even started opening a business yet, now is the time to start finding the people that can really make a difference to your chances of success.
Key Steps to Take
1. Approach prior successful business partners
If you’ve made money for another business person in the past, cultivate that powerful relationship for all it’s worth. Remember, this isn’t just about getting them to give you money (although that would be ideal – it’s always good to work with ‘known’ partners), it’s often about leveraging these contacts to build your network.
Approach these people first, in a structured, organized manner, and tell them about your business. Remind them of your past successful collaborations and ask them both for advice on your business idea. Remember, a lot of successful people tend to have a lot of knowledge and an even bigger sense of self-worth, so asking for advice – not money – is a great way to get input on your concept and to massage their ego before asking for cash.
Project confidence and have plenty of facts and figures ready to back up your claims that your business will be successful.
2. Identify potential investors in your area
You’re looking for people with money to spare who have expressed interest in your industry in the past. These people may have invested in some of your competitors or may have formerly owned a business in your industry. Find out who they are, make a list and approach each one. Contrary to the silicon valley image of investors pumping money into crazy billion-dollar schemes, most investors like to put their money in areas of which they have knowledge and in which they have a great deal of experience.
Note: this kind of knowledgeable investor is well-worth his weight in equity. It can be lonely and stressful building a new company, so this kind of informed support is vital.
3. Attend trade shows and industry events
Trade shows and other industry events are not just great places to find out about the latest trends, they are ideal places to network for investment. Investors will actively be on the look out for new players, so are more likely to be receptive to your pitch. It is, therefore, clearly to your advantage to attend as many such events as possible. Make sure, however, that you are organized prior to each event. Put together information packets that include your business card on top so that potential investors can easily see who you are, what you do and how to contact you.
Even better, do the ground work before the event. Use twitter and LinkedIn to reach out to potential investors and arrange coffees and meetings at the event. Be bold but friendly – and ask for advice not money – and you’ll be amazed how many people are willing to share some of their time with you.
4. Ask for referrals from your current network
Get in the habit of closing every meeting with a request for another meeting with another key investor. At the end of a meeting with a contact, thank him or her for their time and request that the contact introduce you or set up a meeting with an investor they know who may also be interested in what you’re offering.
It is difficult to overstate the importance of this process. Given that most investors will only invest in a limit portfolio, people can love your idea without necessarily wanting to invest. Leverage that love to build your network.
5. Practice your elevator pitch
In order to be successful, you’ll need to be able to pitch your business to investors using just a few words. Practice explaining who you are, what you do and why investors should be interested in your business in no more than 30 seconds. You can check out more advice on perfecting your elevator pitch here.
6. Manage your business perception
It doesn’t matter how great your business is; it matters how great people think your business could be. Remember, a lot of investors aren’t interested in the finished article because their is less ‘upside’ money to be made. Your pitches should talk about current success but emphasize future potential. Come across as confident, professional and ambitious and you’ll make the right first impression.
Don’t focus just on money. Find out what motivates each of your key investors. For some, the possibility of financial dividends is exciting, but others want to invest in businesses that will make a positive impact on the world or bankroll new, innovative ideas. Learn ahead of time what each investor’s values are – and speak to those values in order to motivate him or her to invest.
Some Final Thoughts
Getting investors to put money into your business is challenging but doable – and a great option in today’s age of restricted access to bank loans.
Start networking early and focus on cultivating relationships rather than on meeting your investment goals. If you do that, there’s no stopping you.
Norm Merritt is the President and co-CEO of ShopKeep, a provider of cloud-based point of sale software for managing retail shops and restaurants. Norm is the former CEO of iQor and is passionate about building teams that put customer care at their core. Norm holds an MBA from Harvard Business School and is a Certified Public Accountant.