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How To Raise Money For A Startup?

How To Find Private Investors For Startup Small BusinessBesides your own personal network, what is the best way to get investors for a startup?

Answers

Topic Expert
Paul Benedetto
Title: CFO, Director of Finance, Consultant
Company: Nextwave Software, Rethink Fabrics
(CFO, Director of Finance, Consultant, Nextwave Software, Rethink Fabrics) |

Briefly, I would suggest your starting point is to have at least an executive summary that lays out your business idea, strategy and financial model, 2-4 pages maximum length.

If after evaluating your model, you decide that the business cannot be bootstrapped until you are at the revenue stage, and you have tapped out most of your personal network, some avenues to consider:

A. Kickstarter type websites
B. Angel networks and related websites (e.g. the funded.com, angelsoft.com) Note - many larger city Chambers of Commerce have facilitated such groups in recent years.
C. Private Equity firms that are in your space - go to whogotfunded.com as an example.
D. Tech, university incubator and mba business programs - check out their speaker series and see what might align with your business industry.

I'd be happy to evaluate your idea in confidence, offline, if you want to dig deeper for more specific ideas. There IS alot of money out there and good ideas/companies get funded. You need to know what you are going after (a plan), then attack it. You only get one shot with most of these folks so make it your best one, by preparing properly. - Paul

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Anonymous, realize it's going to take some time and you may have to change your product or service:

Proformative offers 400+ online business courses with free CPE, many on startups.

(Agent, JKS Solutions, Inc.) |

Most of the advice you are looking for comes from the blogosphere. There are quite a few VC and Angel bloggers that write heavily on this topic to help entrepreneurs know what pitfalls to avoid.

I sponsored a Venture Funding Forum in January through the MIT Enterprise Forum and our research considered the following blogs.

A Woman's View
http://www.huffingtonpost.com/angie-chang/raising-venture-capital_b_981135.html

Aggregator View
http://vc.paper.io/

Individual Blog Sites Listed by the Aggregator:

Mark Suster: http://www.bothsidesofthetable.com/
Fred Wilson: http://www.avc.com/
Brad Feld: http://www.feld.com/
Guy Kawasaki: http://blog.guykawasaki.com/
Ed Sim: http://www.beyondvc.com/
Peter Rip: http://earlystagevc.typepad.com/
Paul Graham: http://paulgraham.com/articles.html
Jeff Clavier: http://blog.softtechvc.com/
Matt McCall: http://resilience.typepad.com/
Marc Goldberg: http://mgoldberg.typepad.com/

Other posts that might be helpful

http://www.funded.com/blog/

What to do when Plan A fails
http://www.openforum.com/idea-hub/topics/the-world/article/plan-b-for-fund-raising-1/

On IPOs
http://www.pwc.com/us/en/transaction-services/publications/roadmap-for-an-ipo-a-guide-to-going-public.jhtml

Peter Thomson
Title: Strategy Director
Company: SeedInvest
(Strategy Director, SeedInvest) |

Great answer. I particularly suggest that startup founders read the blogs from a couple of well know Venture Capital investors to get a feel for the things that VCs look for.

Joshua Ho
Title: Business Owner
Company: kmapsystems
(Business Owner, kmapsystems) |

https://angel.co/ is a up and coming one.

There are also many start-up accelerators you could apply to. (Ycombinator, TechStars, 500Startups) These days there seem to be one in just about every major city.
Many of them offer guidance, small seed funding and exposure to investors through their connections.

Topic Expert
Peter Freeman
Title: Chairperson - Clean Tech Committee
Company: Keiretsu Forum - Angel Investors
(Chairperson - Clean Tech Committee, Keiretsu Forum - Angel Investors) |

That depends on a lot of things, and it will be impractical to provide a meaningful reply without putting it in to the context of the ventures stage of development. For example, companies that are post-revenue have far more options.

The info from the blogosphere is useful, but difficult to sift through, a classic case of TMI. Getting in to accelerators or attending pitch sessions; which are available in most cities, is an excellent way to network, gain information, and even practice. One good venue I recommend is the Keiretsu Forum of angel investors.

One channel I do NOT recommend is crowdfunding. In short, until the SEC issues the necessary regulations; which won't happen soon; you can not use that mode to raise capital, issue securities. And when they do, it will be replete with problems, including potentially mixing accredited and non-accredited investors. I am a contrarian view here.

Networking for sure.

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

How and which type of investor you approach depends in part on the answers to a number of questions:
Is the company operational? Do you have a revenue stream? What does your P&L and Balance Sheet look like? What is the track record of the management team? What industry is the company in? How much money are you trying to raise?

I was at an Angel investment forum last week, and one of the first comments from the panel that very few Angels invest in companies that are not operational with a revenue stream. The exception may be bio-tech, but even that is rare. A realistic business plan with projections is also key, as well as a polished presentation. Angels start the process based on your idea, but invest based on the management.

VC financing will require the same preparation as Angel financing but is generally for larger dollar amounts. Their due diligence costs are the same whether the amount of investment is $1 million or $50 million, so they generally will not want to spend the time on anything less than $5 million (this varies by VC group) because the return is not sufficient.

An accelerator or incubator is an option, as they can provide facilities and introductions but they provide support, not significant financing.

If you have collateral or other sources of repayment, bank or SBA financing is also possible.

Topic Expert
Kim Kovacs
Title: Executive Vice President
Company: Solium
(Executive Vice President, Solium) |

This is a great question and I have two tips on how best to attract investment outside of the inner circle of friends, family and professional contacts.

1. Choose business service providers with solid business contacts, meaningful connections to private equity firms and investors, and networking capabilities, even if they cost more. They’re like little gold mines. Obviously, you can’t ask your attorney for a comprehensive list of his or her customers, but you can candidly say that you’re looking for an advisors who are better at networking than others. Call them. Meet them once a month. If they’re operating with other people in your industry, potentially they might tell you that they’ve helped other people raise funding.

2. Keep meticulous books. A private equity or venture firm, which is already fully invested in your industry, will be receptive, particularly if you have your accounting in order, your managerial structure is sound, and your business model is fantastic. Investors will often pass on businesses whose record keeping is sloppy, not electronically backed up, non-compliant. This is where the OptionEase product can help. We often come in to help business organize their books and financials before going public, merging, or simply scaling up into a larger organization.

I hope these tips help, if you’d like more, please leave a comment. Happy capital raising!

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

In your prospectus (i.e., business plan), be very careful and salaries and return of capital the current ownership is projecting.

No one likes to see exorbitant figures in a start-up when they are investing. They'd rather see a quicker return of their equity.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Anon,

I'd call out the "your own network" presumption, and counter it with the "six degrees of separation" presumption. You may not personally know the best potential investors, but someone you know will know someone who does. So, the best way is to use your network to build an new and targeted network around those potential investors.

There are a ton of incubators, etc. where you can work your way in and get in front of an investor or two. However, this is much more of a random approach, and while it can be successful, there is no guarantee that *any* appropriate investor will be in the room to see you. It is your job to seek them out, and wow them when you find them.

KP

Gary Honig
Title: President
Company: Creative Capital Associates Factoring Co..
LinkedIn Profile
(President, Creative Capital Associates Factoring Company) |

Raising equity investment is almost a full time job within your business. It has a learning curve, it needs a strategy, execution and follow up lessons learned like any other part of your business.

Back in 1954, all Elvis needed to do is jump up on a stage to propel himself to stardom. Were he starting out today he'd have a hard time turning many heads. The point is, it's incredibly difficult to garner attention in this day and age.

I would say my number one piece of advice is - don't appear to not know what you should already know about finding investors. Read a lot, get mentors, hire a good attorney that knows their way around an offer letter (they make good conduits to introductions.)

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Lots of good advice and leads. Here is one that has not been mentioned....

If you want soup, be in the kitchen where soup is being made!

There are lots of Silicon Valley alternatives but nothing that rivals the ECOSYSTEM that SV has. That being said, "soup" is still being made on these alternative hubs. Stories of meeting people who know people that may have interest in your startup in a Silicon Valley coffee shop (for example) are abundant.

And yes...you can get funded even if you are not in Silicon Valley or any of the emerging hubs, but why not increase your chances? And yes, even if you are in SV, the possibility of NOT getting funded is always there.

On a separate note, here is one thing I always tell entrepreneurs....."Do NOT fall madly in love with your product/service/idea". A lot of the successful startups (well, in this day and age successfull and valuation may be different but that is a different conversation altogether) have little to no resemblance to their original pitch/idea/product/service.

Jon Placa
Title: Director of Finance and Operations
Company: NarrativeDx
LinkedIn Profile
(Director of Finance and Operations, NarrativeDx) |

Feel free to reach out to me - I've been through accelerators (Techstars) and venture funding before.

Fundraising is easier when you have a list of existing customers and functioning/scalable product/business. Approaching investors who have invested in similar businesses always helps your cause

Gennady Shenker
Title: President
Company: GDS Solutions
(President, GDS Solutions) |

Brad Feld wrote a book Venture Deals, which is a must read before you embark on fishing for money.

Jeff Nevil
Title: Writer
Company: Self-Employed
(Writer, Self-Employed) |

Lots of informative and helpful answers here already. It is also worth noting that bootstrapping is almost as important as fund raising, particularly in the early phases of a startup.

Some ways to keep costs down are; sharing offices, bartering for goods and negotiating product swaps. Additionally, not buying new equipment as there are always adequate second hand resources online. Make sure to minimise your own expenses as well and use the wealth of free software available whenever possible.

Here is an article with more detailed strategies to save money whilst running a business - https://www.entrepreneur.com/article/272999.

Being frugal wherever you can, will mean more capital for the non-negotiable investments you have to make.

Jeff

Michael Wells
Title: Owner
Company: FAB-U ON DEMAND TAXI LLC
(Owner, FAB-U ON DEMAND TAXI LLC) |

Where in Atlanta Ga can I find Angel investors?

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