Raising money for any business in this tough economy isn’t easy. More owners are scrambling to attract new capital, and investors are holding tighter to their money, causing a major disconnect. Successful VCs and private equity funds are only investing in 1 out of every 500 or so deals they see. Banks have cut back lending. Angel investors hammered in the 2008 market meltdown, lost their appetite for new deals while focusing on salvaging existing investments. However, you can raise the funds you need. You won’t get the very best terms and it will take you much longer than you thought. You may even have to retain an outside firm to help; but if it makes sense and you are fundable, you can get the deal done.
One of the benefits of raising capital from outside investors and lenders is they are a litmus test for your business model. Their decisions will help you get a better—and more objective—perspective on the prospects for your business. Many owners fall deeply in love with their business and continue to plow through their own capital hoping, wishing, and expecting it to be a home run. They do this up to the point where they have exhausted their own financial resources and taken on debt, but haven’t taken the business to the promised land. Be realistic. Don’t bleed yourself and your family, dry funding an idea that is not working. I see this all the time—entrepreneurs are optimists. To have a shot at raising serious capital to support growth, your company needs to have a business plan that makes sense. (more…)