17Jan
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4 Tips To Raise Money For Your Small Business

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For every Google and Ebay, there are thousands of small businesses that are employing the lions share of Americas workforce and drive the most revenue for the US economy.

Not everything is a sexy technology start-up.

Owning a chain of dry-cleaners that are profitable and debt free will potentially get my respect as much as a dot-com business that may not be here in 2 years.

Building companies that have enduring value with tangible assets is something to be proud of…


I’ve had millions invested over the last 10 years in my companies for both startup and growth capital. Some of that came from bank loans that I paid back, but a good percentage came from “Angel” Investors.

Banks are the most likely (and often the best) way to get funding for small businesses. If starting a business appeals to you then it’s a good idea to begin learning how to deal with Angel Investors as well as banks.

Note: FundingUniverse is a great option for finding both bank loans and Angel Investors.

Here is a list of four suggestions that have helped me and will help you be successful when raising money from Angel Investors:

    1. Honesty: Angels, partners and investors appreciate frankness when talking about the business they might invest in. Being an optimist is good, but give honest answers, even if it may hurt your chances of having them invest. Bad news is always better than no news or incorrect news.

 

    1. Communicate: Go out of your way regularly to communicate after investment. Too many people raise money and then fall of the Earth. Investors are left guessing (unless they call a lot) how things are going. It’s is better to over-communicate about the up’s and down’s of your business. No one likes bad news – but surprises are even worse. Take the time to keep your partners updated with exactly what is going on in your business. This takes a lot of discipline as it is easy to fall out of the habit. If you are willing to keep up with it, and your partners make money, then it will be more much more likely they’ll invest with you again.

 

    1. Understand before being understood: Before trying to get someone to understand your perspective, first try understanding their perspective. Many entrepreneurs only see the up side to their company and its future value. They tend not to see the down side of their idea. Keep this in mind when you are coming up with potential partnership structures. The risk really should equal the reward. I read recently about an angel that owned 100% of the companies he invests in until a certain return is achieved. Once reached, the Angel converts to 20% permanent equity and hands the business over to the entrepreneur as the instant 80% owner. Although some may hate this idea, it’s this type of creativity that may attract angel investors for your new business idea.

 

  1. Cash is king: No matter how much time and effort you put into a business it will never be worth more than cash. Never. You will be in for a tough sell with any respectable Angels if you try to convince them that you have a lot to lose (your time and effort) if things don’t go well. This is crap! You will feel hurt, disappointment and some pain, but you can get a job or start another company and they are left with a hole in their pocket. Be respectful of this fact and you will be more successful in your negotiations.

For more information on raising money from Angel Investors, here is a great book from Brian E. Hill, that I read during my MBA program.

Attracting Capital From Angels: How Their Money – and Their Experience – Can Help You Build a Successful Company.

There are other factors to keep in mind when finding people to invest in you and your ideas. I will write more on this topic soon.

For now quit reading and go raise some money!!!

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About Alex Lawrence

Alex has been a successful entrepreneur for 20+ years. His current venture Lendio ranks #34 on the Inc. 500 list. Alex earned a BS degree at the University of Utah and his MBA at Weber State University, where he is Vice Provost and Director of the Entrepreneurship Program. If you want to talk with Alex about business and entrepreneurship (or other questions), email him (alex AT startupflavor DOT com), or you can find him on Twitter @_AlexLawrence.
  • Devin Day

    Great post. I especially resonate with #2. It’s so easy to get caught up in the building that you can easily forget that there are people who need to be kept up to speed on who, what, why, where, when. It’s also easy to say…”well they have the biz plan with all the key dates” but we all know those plans change from day one once you start.

  • Alex Lawrence

    Thanks Devin. #2 both prevents and solves a lot of problems, so it’s a really important one to focus on. I’m not saying spend your time letting investors micro-manage your business. I am saying that I’d rather err on the side of too much, rather than too little, communication.

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