We have compiled a list of some practices which seem sure to kill your chances to attract investors. Ignore these lessons at your peril:
- Poor market research, weak business plan
- An unfocused, “shotgun,” approach to which venture capital sources to approach
- Does not have enough seed capital dedicated to the capital raising effort
- Does not allow ample time for raising the capital
- Seeks too much capital, or sets too large a minimum initial investment for the project or company.
- Does not have enough of their own capital committed to the project.
- Does not have a clear picture on the use of proceeds.
- Does not have a rate of return projected on the investment
- Does not guarantee an exit strategy for the investor
- Does not have a solid management team put together
Even when early funding is secured, the entrepreneur can make strategic errors that make follow-on investment less likely:
- Does not raise sufficient capital early enough in the game.
- Engages in spending capital before adequate capital is secured.
Denied traditional routes to venture funding, many entrepreneurs will turn to techniques that are often called “guerilla” financing:
Business Opportunity ads. Place advertising in a local newspaper or a national publication featuring such ads. State the amount of money requested, the type of business involved, and the kind of return being projected.
Investment “party.” Give a party to explain to friends your business plan, the profit potential, and how much you need. Give them each a copy of your prospectus and ask that they pledge a thousand dollars as a non-participating partner in your business. Check with the current tax regulations.
Occupational investment groups. The next time you talk with your doctor or dentist, give them a prospectus and explain your plan. They may invest or perhaps make an appointment for you to talk with the manager of their investment group.
Non-Profit assistance groups. Many areas have Small Business Investment Companies, and Business Development Commissions whose goal is to assist in the establishment and growth of new businesses. Many offer money or facilities to help a new business get started.
Money brokers. These circulate your prospectus to various known lenders or investors. They generally require an up-front or retainer fee, then take a percentage of the gross amount that’s finally procured for your needs. There are no guarantees of success.
Strategic partners. Consider the feasibility of merging with a company that’s already organized, and with facilities that are compatible or related to your needs.
The person with determination to succeed will make use of every possible approach.
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John has almost 40 years experience as a management and strategic consultant, entrepreneur, author, and college professor. For 20 of those years, Dr. Vinturella was owner/president of a distribution company that he founded. He is a principal in business opportunity sites jbv.com and muddledconcept.com
