How to Get Your Business Funded in 12 Easy Steps
By Michael Brennan
- Write a vision statement and a set of short and long term goals.
A vision statement should be short and concise. It should, with clarity and conviction, describe where the company is going, what you intend it to be, your dream. Don’t be afraid to be bold, even provocative. It is the what, not the how. In addition, it is important to write down a set of near and long-term business goals built around an illustration of your high-level business model. Post your vision, goals and illustration on a wall or somewhere it can be seen and reflected on regularly by you, your team and anyone that visits you.
- Find business development specialists to assist you.
Identify early-stage capital and business development specialists and resources to assist you. This is critical, regardless of the strength of your idea, business model or team. The single most important decision successful entrepreneurs make – after first making the bold decision to start something new, disruptive and exciting – is to seek out experienced, proven experts to help them make smart choices. Know what you know and what you don’t.
- Adopt a “post-funding” mentality.
That is to say, if an entrepreneur wakes up every day and imagines what he or she could do if they only had capital to do it, failure is imminent. If instead, the mindset is, “What I do today will strengthen my value proposition,” then funding very often simply becomes a byproduct of that process.
- Perfect and internalize a 30-second pitch.
Every hour of every day, entrepreneurs discuss some part of their business with someone. Regardless of who that is or context, it is extremely important to be able to communicate what you do, how you do it, differentiation, what you need and how you’re going to get there with brevity, clarity and conviction.
- Establish value and structure.
There are many valuation calculators and methodologies, including discounted cash flow, EBIT multiple, P/E multiple, VC pricing and public comparable. I recommend entrepreneurs exercise all of these methods to determine a “means” pre-money value for the company leading to an offering structure. There are professionals available to assist with this process, and the cost need not be daunting.
- Identify funding options and design a multi-tiered funding strategy.
Local incubators can help to navigate the dozens of funding options available to startup and early-stage ventures. Once sources are identified, it is important to develop a funding strategy that often includes parallel or sequential capital raise processes.
- Prepare an offering.
A convertible debenture is a proven offering structure for early stage companies. It can provide broad flexibility in terms and therefore allows for common ground to be found among a variety of investor types, including friends and family, angel, angel network and strategic investors. Note that entrepreneurs should only pay for those documents that are absolutely necessary prior to engaging investors in initial discussions. Primarily, those are valuation and a term sheet that can both outline the terms of engagement and serve as a legal letter of intent.
- Only raise the capital you need, when you need it.
Regardless of the source, capital is often expensive. Entrepreneurs should look forward 3-5 years and ask themselves, “What will my company be worth? How much am I willing to give up or be diluted?” That answer should, in part, drive the early decisions relative to securing capital. In my view, it is always best to raise what is needed, work hard to meet predefined milestones, and then open your next round while being careful not to undercapitalize the company. This again underlines the importance of working with experienced professionals to assist.
- Identify and detail more than one exit strategy.
Principle and interest, distributions of a percentage of profits pro rata, merger or acquisition and public offerings are very typical and often misunderstood strategies that can be used to mitigate risk for shareholders. It is very important to take the time to identify various exit strategies for shareholders, as it can define the difference between interested parties and check writers for your company.
- Defining potential joint venture and strategic partners.
Big businesses often leverage joint venture and/or strategic relationships to secure new business, create or protect new markets, launch new products and so on. The same is true for shrewd entrepreneurs and early-stage ventures that are able to effectively share a vision with partners, who may in turn be able to provide capital, market intelligence and other opportunities, leading to accelerated growth as well as mitigation of risk and broader opportunity for shareholders. Often, these entrepreneurs remain autonomous, retaining equity while providing intellectual property and other assets that make such relationships successful and can accelerate your idea to market by leveraging partner assets and relationships.
- Choose your team wisely.
Sophisticated early-stage investors will tell you they would much rather invest in a strong management team with a so-so business model than a so-so management team with a strong business model. Obstacles are inevitable, and investors want to know that the entrepreneur and team are poised to win, regardless. For this reason and others, entrepreneurs must be mindful of whom they choose as senior team members, and when.
- Never let others define who and what you are.
One of the most difficult parts of being an entrepreneur or innovator is dealing with voices of fear, doubt and rejection, including prospective investors. Entrepreneurs must always reflect on their vision and mission and be confident in themselves, their plan and focus. In our society, we tend to value those with money far more than we should. “No,” “I don’t think that will work,” “Someone else is doing that,’” or “What makes you think you can do this?” are common, if not daily, mental hurdles successful entrepreneurs not only overcome, but also thrive on. “Let me tell you how”, “I’m glad you asked that question” and “That is precisely what will make us successful” are examples of a successful entrepreneurial mindset in response. Being told what one can’t do goes to the very core of what powers American ingenuity, innovation and invention.
Interested in hearing more from Michael Brennan? Join him as he presents at OU INC’s next Capital Raise Meetup, Sept. 9, from 9:30-11 a.m. Brennan will provide a group presentation as well as individually help each company to determine their needs. As an accomplished executive and entrepreneur with 28 years of experience, Brennan has helped private companies secure more than $150 million in capital while helping to create jobs.