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Document Sample
11. Raising Money & Financing
Every
business
needs
some
amount
of
capital
to
get
off
the
ground.
In
some
rare
cases
the
founder
can
fund
the
en:re
venture
themselves,
but
for
the
rest
of
us
I’m
going
to
explore
methods
and
sources
to
acquire
business
capital.
I
will
begin
by
explaining
my
philosophy
on
raising
money,
and
defining
the
personal
traits
that
will
be
cri:cal
for
you
to
gain
the
trust
of
investors.
Then
I’ll
explore
different
sources
of
capital,
such
as
seed
funding,
angel
and
VC
funding.
Finally,
we’ll
talk
about
mastering
your
pitch,
and
the
one
approach
that
I
guarantee
will
get
you
the
money
you
need.
The Five P’s
Over
the
years
I
managed
to
raised
several
million
dollars
for
Docstoc
by
remembering
these
5
P’s,
which
are
all
cri:cal
to
inspiring
investors
and
geHng
funding.
For
more
details
on
raising
money,
check
out
this
course,
and
browse
this
resource
package.
1)
People
Chapter 12: Raising Money
The
first
thing
an
angel
or
VC
will
invest
in
isn’t
an
idea,
it’s
the
person.
So
when
you’re
raising
money,
before
diving
into
your
great
idea
and
business
model,
sell
yourself
first.
Investors
are
beHng
on
you
as
an
entrepreneur,
on
your
work
ethic,
your
leadership,
and
your
team.
Because
a
lot
of
inves:ng
involves
trust,
it
helps
to
meet
an
investor
as
a
warm
referral,
through
a
recommenda:on
or
mutual
connec:on.
It’s
also
much
easier
to
raise
money
if
you
have
experience
in
the
field
you’re
star:ng
a
business,
and
a
track
record
of
success.
If
you
don’t
have
that,
it’s
important
that
you’re
like-‐able
and
create
an
idea
that
will
catch
an
investor’s
eye.
2)
Product
If
you
don’t
have
much
experience
or
connec:ons,
focus
on
crea:ng
an
idea
investors
can
get
behind.
They
generally
will
not
invest
in
your
idea
without
a
product
to
look
at.
If
you
have
a
website,
they
want
to
be
able
to
log
on
and
play
around
with
it.
If
it’s
a
retail
or
physical
space,
they
want
to
see
a
mock-‐up
or
the
actual
store.
If
it’s
a
product,
they’ll
want
to
see
a
prototype.
An
investor
is
looking
for
a
product
that
other
people
want,
that’s
Chapter 12: Raising Money
engaging,
that’s
different
and
be<er
than
other
products
on
the
market.
Your
goal
is
to
help
them
see
poten:al
for
growth,
and
show
them
that
their
capital
will
help
you
get
that
next
set
of
customers
needed
to
get
your
business
off
the
ground.
3)
Progress
Investors
want
to
see
momentum,
and
resourcefulness.
If
you
come
to
them
and
say
“I
have
a
great
idea,
I
just
need
the
money
to
built
it
out
and
get
customers”
that
shows
much
less
mo:va:on
than
“I
had
a
great
idea,
so
I
wrote
this
business
plan
and
put
what
liWle
resources
I
had
into
building
out
this
prototype.”
Even
more
impressive
to
an
investor,
is
if
you
can
show
them
that
you’ve
go<en
your
first
set
of
customers,
and
even
started
making
a
li<le
money.
If
you
do
that,
you’ll
demonstrate
a
quality
that
investors
will
want
to
invest
in;
the
ability
to
do
more
with
limited
resources.
This
gives
you
the
leverage
to
say,
“look
what
I
did
with
$10,000,
imagine
what
I
can
do
with
$100,000.”
Chapter 12: Raising Money
4)
Passion
People
buy
things
on
emoEon,
and
jusEfy
their
decision
aGerwards
with
logic.
Investors
work
the
same
way.
They
will
invest
based
on
their
feelings,
and
ra:onalize
their
decisions
later.
What
emo:ons
guide
them?
“I
like
this
this
person.
I
like
his
idea.
I
get
a
good
feeling
from
him.
I
think
he’ll
make
the
most
of
my
money.”
These
are
ins:ncts,
not
ra:onale.
But
if
you
get
on
the
wrong
side
of
these
feelings,
and
an
investor
doesn’t
like
you,
they
will
not
invest
in
your
idea.
They
are
not
inves:ng
in
a
physical
asset,
they’re
inves:ng
in
a
businessperson,
which
means
you
need
to
make
an
emo:onal
connec:on,
to
connect
with
their
passion.
The
best
way
to
do
this
is
to
be
passionate
about
your
idea.
Whatever
you’re
most
passionate
about
in
life,
be
twice
as
passionate
about
your
business.
This
passion
is
contagious,
and
you
investor
will
feed
off
your
energy
and
excitement.
In
both
raising
money
and
down
the
line,
your
passion
is
a
commodity
you
can
trade
to
get
things
done
in
your
business.
People
want
to
be
around
passionate
people,
they
will
always
be
willing
to
work
with
someone
they
feel
inspired
by.
Chapter 12: Raising Money
5)
Persistence
The
final
key
trait
is
persistence.
Be
ready
to
do
whatever
it
takes
to
raise
the
money
you
need.
There
was
an
investor
who
wasn’t
puHng
very
much
money
into
Docstoc,
and
I
con:nued
calling
him
to
set
up
mee:ngs
and
show
him
our
progress.
I
called
him
so
much,
part
of
the
reason
he
may
have
invested
in
our
business
was
just
so
I
would
leave
him
alone.
But
even
more
importantly,
this
persistence
was
also
an
indicator
of
what
type
of
entrepreneur
I
would
be,
how
dedicated
I
would
be
to
compleEng
other
goals,
such
as
geHng
customers
or
building
a
great
product.
Sources of Capital
There
are
various
basic
ways
to
raise
money,
some
that
may
be
beWer
suited
for
the
stage
of
growth
and
financial
situa:on
of
your
company.
Here’s
a
list
of
various
sources
of
capital
to
consider,
and
how
to
acquire
them.
Bootstrapping
Chapter 12: Raising Money
The
first
and
most
obvious
source
of
capital
is
yourself.
Everybody
has
sources
of
capital
at
their
disposal.
Whenever
I
hear
somebody
say
“I
would
have
started
this
business,
but
I
didn’t
have
the
money,”
I
know
they
aren’t
dedicated
enough
to
their
idea.
You
have
credit
cards,
you
have
savings,
you
have
access
to
money
through
all
sorts
of
crea:ve
ways.
People
will
find
money
for
the
things
they
really
want.
When
you’ve
exhausted
your
financial
op:ons,
use
what
you
have
and
bootstrap.
Make
the
most
of
the
limited
resources
you
have,
and
build
what
you
can
with
the
money
you
have
pulled
together.
For
more
help
bootstrapping,
check
out
this
live
discussion.
Seed
Round
Your
seed
round
is
the
next
logical
step
a^er
you’ve
scrounged
together
as
much
capital
as
you
can
on
your
own.
The
seed
round
is
when
you
ask
family
and
friends
for
small
amounts
of
money,
anywhere
from
$1,000
to
$50,000.
I
don’t
recommend
raising
money
from
people
who
really
need
it,
or
would
be
compromising
their
savings
by
lending
to
you.
Only
borrow
an
amount
that,
if
lost,
wouldn’t
put
them
in
financial
hardship.
This
isn’t
fair
to
them,
and
will
also
put
unnecessary
pressure
on
you
during
an
already
stressful
process.
Chapter 12: Raising Money
Angel
Investors
The
next
source
of
funding
to
consider
a^er
your
seed
round
are
angel
investors.
These
are
smaller-‐scale
investors
who
put
capital
in
a
variety
of
different
companies,
and
invest
anywhere
from
$25-‐100,000.
Bank
Loans
&
Credit
Lines
Unless
you
have
valuable
assets
or
another
successful
business
that
the
bank
can
use
as
collateral,
it
will
be
hard
to
get
a
bank
loan
to
start
your
business.
If
you’re
commiWed
to
the
idea
of
a
bank
loan,
you
can
try
to
prove
future
income
using
receivables
and
contracts
outlining
payments
that
will
be
made
for
your
services
or
products.
The
more
credit
you
have
built
up
from
spending
and
paying
off
your
bills
regularly,
the
more
likely
it
is
that
you
can
open
a
Chapter 12: Raising Money
business
line
of
credit
starEng
at
$10,000
a
month.
If
you
are
paying
it
off
regularly,
that
can
probably
increase
to
$20-‐50,000
in
a
year
or
two.
Venture
Capital
Venture
capitalists
are
professional
money
managers
who
raise
money
from
partners
like
pensions
funds,
universi:es,
and
large
private
family
holdings,
and
pull
them
together
to
create
funds
of
50-‐20
million
dollars.
They
use
these
funds
to
invest
in
very
promising,
high-‐growth
companies,
almost
always
through
a
liquidity
event.
To
determine
if
your
business
is
fit
for
venture
capital,
compare
it
to
other
VC-‐based
companies.
If
you
believe
you
can
scale
to
over
100
million
dollars
in
revenue
in
under
7
years,
you
may
be
qualified
for
VC
investment.
VCs
are
looking
for
companies
with
a
chance
of
becoming
billion-‐
dollar
ventures,
and
which
have
the
poten:al
touch
millions
of
users
if
infused
with
the
right
amount
of
capital.
It
would
have
been
hard
to
scale
Docstoc
into
a
profitable
company
without
the
4
million
dollars
investment
we
received
to
build
out,
test
and
grow
our
product
and
user
base.
Chapter 12: Raising Money
From the Mouth of VCs
Listen to John Babcock, a partner at the Venture
Capital firm Rustic Canyon talk about the best way
to pitch investors in this video.
For a more in-depth discussion, check out this
roundtable lecture and Q&A, where a variety of
venture capitalists break down exactly what they
look for in businesses to invest in.
Mastering the Pitch
I’ve
established
that
most
investors
invest
in
people
rather
than
ideas.
If
investors
know
your
work
ethic,
and
believe
that
you
are
trustworthy,
they
are
more
likely
to
invest
in
you.
But
most
entrepreneurs
don’t
get
to
know
investors
un:l
they
need
capital,
and
therefore
haven’t
had
:me
to
establish
that
credibility.
My
key
to
success
is
simply
to
reach
out
to
investors
before
you
need
money,
and
talk
to
them.
Ask
them
for
any
mentorship
and
advice
they’d
be
willing
to
share.
Chapter 12: Raising Money
Explain
to
them
what
you’re
working
on,
and
tell
them
what
you
plan
to
accomplish
in
the
next
3
months,
including
specific
goals
you’ve
set,
such
as
comple:ng
your
product
or
geHng
your
first
100
customers.
Set
benchmarks
that
you
believe
you
can
very
reasonably
achieve
in
that
period
of
:me,
and
plan
to
exceed
them.
So
if
you
tell
an
investor
you
plan
to
launch
a
product
and
get
your
first
10
customers
in
3
months,
actually
plan
to
launch
your
product
and
get
100
customers
in
2
months.
Reach
out
to
them
and
tell
them
what
you
have
achieved,
and
ask
them
for
any
feedback.
Then
tell
them
what
your
next
goals
are.
Once
again,
set
goals
and
over-‐deliver
on
every
metric
you
set
out
to
achieve.
A^er
a
period
of
6
months,
when
you
have
consistently
completed
every
task
you’ve
set
out
to
do
ahead
of
:me,
you
have
created
a
reputa:on
for
credibility.
Pitching to Investors
Once
they
see
how
Chapter 12: Raising Money
much
you
can
For a more detailed overview
achieve
with
$10-‐
of writing a viable business
30,000
they
will
plan deck and pitching it to
actually
believe
in
investors, check out this
how
much
you
can
course.
get
done
with
$100,000
or
more.
They
will
trust
in
Also check out this fireside
your
ability
to
meet
chat I held with Diego
goals,
and
will
be
Berdakin and Josh Berman,
willing
to
invest
in
founders of Beachmint and
you
as
a
person.
former founder of Myspace. In
that discussion they explain
how they raised millions in VC
For
more
on
raising
funding, and helped other
money
your
first
startups raise money as well.
:me
around,
check
out
this
video.
Resources Recap
•
Raising
Money
•
Raising
Capital
for
Your
Business
(course)
•
Raising
Capital
Toolkit
(legal
document
package)
•
Raise
Money
(video)
•
Sources
of
capital
(video)
•
Bootstrapping
•
Bootstrap
Your
Business
(ebook)
Chapter 12: Raising Money
•
Roundtable
discussion
on
Bootstrapping
(lecture)
•
Venture
Capital
•
How
to
Pitch
to
VCs
(video)
•
How
to
Raise
VC
(lecture)
•
The
Pitch
•
Perfect
the
Pitch
(course)
•
How
to
Pitch
Investors
(lecture)
•
Tips
for
Raising
Money
(PPT)
•
Business
Plan
Deck
Template
(PPT)
•
Raising
money
the
first
:me
around
(video)
