Busting the Myths about Raising Money – Forget Everything You Think You Know
The amount of misinformation and confusion out thereabout raising capital from investors is staggering! If experts like lawyers andfinance specialists are so often wrong on this topic, imagine how hard it isfor the layperson entrepreneur to get the full and correct picture.
Entrepreneurs areconstantly making huge mistakes with their capital raising efforts that cancost them time, money, and even their business. Even worse, they may noteven consider raising capital because their understanding of the capitalraising process makes them think that it is not an option for them.
Let’s bust some myths about what it means to raise money from investors. Here is some of the conventional wisdom that you’ve probably heard orread on the internet:
1. Investors consist of very wealthy individualsand organizations and they are all looking for basically the same thing and youneed to tailor your business to fit what they are looking for.
2. You can only raise money from investors if youare going to grow your business very fast and have a “liquidity event” inwhich the investors make 30-50 times their initial investment.
3. Even though you have to give up a lot ofownership and control when you raise money, the good thing about it is thatyour investors have a lot of experience and contacts in your industry so theycan advise you and make great connections for you.
While these statements are true for certain types of investors andinvestments, they are not universally true. In fact, in my experience(having helped my clients raise millions of dollars and having raised severalhundred thousand for my own company), the following statements are true:
1. The universe of investors is far larger thanangels and venture capitalists and each investor is unique.
2. There are many ways for investors to get healthyreturns that do not require the company to be sold.
3. The “smart money” that supposedly comes fromprofessional investors (i.e. all that expertise that they supposedly have) isquestionable. Some professional investors can be a huge asset to thecompanies they invest in, while others will take the company in the completelywrong direction. The founders often know a lot more about the rightdirection to take their business than an outside investor does.
To learn more, watch my on-demand webinar and avoid‘The Bootstrap Trap’.
A “liquidity event” means something that happens that allows yourinvestors to cash out their investment – the two main liquidity events are asale of the company and an initial public offering (IPO).