Raising money for business can be a very useful and potentially litigious activity if not done properly. It is important to be aware of certain rules/laws so that you and your potential investor(s) are on the same page throughout the process. However, getting venture capital from business angels or a venture capital firm is not an easy task, but it is possible with all the right ingredients.
Seven Essential Rules When Raising Money From Angel Investors
1. Always have a complete, written and professional business plan.
2. Always tell the potential investor that, in the worst case, he can lose his money.
3. Make sure the assumptions section of your business plan is lengthy, accurate, and professional.
4. Ask a CPA (Certified Public Accountant) to prepare your cash flow projections using the NPV (net present value) break-even point.
5. Dress conservatively. Men wear a blue suit, white shirt and red tie, for example.
6. Be confident and look them straight in the eye when presenting to American prospects.
7. Have your attorney review any agreement before you sign it.
Introducing an angel investor forever Have your written business plan with you and use it during your meeting with your potential investor. This is extremely important. When the investor asks to see your business plan, you better have one or you’re dead in the water. Not having one is really a killer deal. If you’re empty-handed, you’ll look like an amateur and hurt your credibility. Not having a business plan is like going to play soccer and leaving the soccer at home on purpose. It is your most valuable and essential set of tools when looking for money to do business.
Cash for the business when it starts and ongoing cash flow are two of the most critical factors that determine whether it will survive long enough to have a chance to thrive and be profitable. The old adage “cash is king” is very true here; it is like a beating heart, if it stops, you no longer live. If your cash flow stops or you run out of cash for business operations, then you’re out of business. Business angels will often agree to provide seed and future funding for business. Future funding for your business is often tied to benchmarks that you will set together when you begin your financial relationship.
When it comes to private investors (angel investors), you already know that the worst case scenario is that you could lose your money. If you don’t acknowledge this well-known fact to be true, they may feel like you’re cheating them, and rightfully so. By bringing this out into the open, you become a truth teller, an honest broker, and as such, more trustworthy.
The assumptions section of your plan is your logic, reasoning, and basis for your conclusions. This shows the potential investor how he thinks, what he knows, and how well he can apply what he knows to a business situation. This section is a double-edged sword. It can be your best friend if you’re smart and know what you’re doing, or it can be your worst nightmare if your assumptions are based on fantasy instead of fact. Cash flow projections are also a particularly important part of your business plan and should be prepared by a CPA.
Conservative dress mentioned in rule number 5 has been studied and found to increase your ratio of closed sales to the number of presentations made. Go with what works regardless of the need to dress differently. Be confident and look them in the eye for American prospects. There are other cultures that you shouldn’t make eye contact with so much, so do your homework if you’re introducing international prospects and find out their cultural norms ahead of time. This paints a positive image in your American prospect’s mind, one of trust, safety, and honesty.
Have an attorney review any agreement your private (angel) investor may offer before you consider signing it. Do not be a victim of the pressure of urgency. Take a day to think about it and present it to your attorney. It will seem smarter to them and they will be able to make a much more informed decision.
Business help can be an essential part of looking for cash for your business. This is particularly true when it comes to raising money for a new business. Part of your preparation for raising capital is researching, writing, editing, and producing your written business plan. Many times we as entrepreneurs get so close to our own business plan that we lose our objectivity. In other words, we fall in love with our plan, making it hard to see clearly any errors or flaws in our facts or assumptions. This is why it is crucial to have objective feedback from another person trained and educated in business. Get the help you need and do it right. I wish you the best of luck in your endeavours.