by Jenny Kassan, author of “Raise Capital on Your Own Terms: How to Fund Your Business without Selling Your Soul“
Startups are part of the American Dream, and small businesses play a key role in economic growth. Between 2009 and 2013, 60% of the jobs created were from small businesses. Yet too many entrepreneurs think of their businesses as outside the traditional funding model. While it’s true there are plenty of traditional venture capitalists — the kind who pushed Ben & Jerry’s to sell its soul to the highest bidder — they make up only 0.3% of the funding picture. 50% of all American adults are investors, and they’re a diverse group. It’s likely someone shares your values and vision.
Not seeking outside capital is a strategic mistake as well: you need investment to survive and grow. So don’t give up on finding the capital you need for your business. Instead, commit to finding the right investors who share your goals and values.
Here are 7 time-tested ways to find investors that are right for you:
1. Avoid the bootstrap trap.
Leave that credit card alone, and refrain from depleting your savings. 82% of startups fail due to cash flow problems. If you don’t resolve to seek outside funding, you’ll spend all your energy keeping your business afloat – and could burn out quickly, taking your dream down with you. Commit to finding the resources to get the help you need, so you can quit your day job, pay yourself a salary, and give your business a chance to thrive.
2. Clarify your values and goals.
To stay true to your values and goals when going for funding, you need to be absolutely clear on what they are. Be honest about what you’re willing to do and where you want to go, then found your capital raising plan on that. Are you willing to give up any control? What are your non-negotiables — such as only working with suppliers who observe Fair Trade practices? How fast, and how big, do you want the business to grow? Are you aiming to sell it within 5-10 years, or keep hold of the reins? Don’t try to raise money from someone who doesn’t see things the same way.
3. Expand your vision of an investor.
There’s far more out there than the investor-in-a-suit model. We’re seeing a rise in impact investors, who consider environmental and community concerns as well as the bottom line. And no two investors think alike, work from the same expectations, share the same values or have the same interests. To raise funds that allow you to stay true to what you care about, look for investors who support your vision and are excited to fund your business. There are plenty of funders out there who will see your business the way you do.
4. Craft a well-designed offer.
Be creative about the investment opportunity you offer to investors. There are endless variations, but what won’t work is a one-size-fits all approach. Make sure the offer matches your values and goals, and appeals to the kind of investors you want. Keep in mind that your offer shapes the relationship: the promises you make to your investors will affect you for years to come. Avoid using an off-the-shelf investment agreement for that reason, and carefully select an expert to work with who has experience with all the possible options.
5. Choose your legal compliance strategy.
U.S. securities laws were designed as concrete regulations to protect people from making naive investments. Make sure you’re choosing the right legal compliance strategy — as it will determine not only who can invest in your business, but how much you can raise, and how you can get the word out. Choose the strategy — and make sure you understand it fully — before you make an offering to any potential investor.
6. Prepare your mental game.
Too many startup founders skip this step, but a strong mental game is key to staying on track over the capital raising journey. That holds true regardless of how amazing your idea or the offering are. Check in with your beliefs: Are there doubts lurking in your mind? Do you know everything there is to know about the many options and tools for raising capital? A negative mindset may derail your best efforts at reaching out to investors. The more you know and the more prepared you are, the more confident you can be that you will find the right investors.
7. Enroll your investors.
Once you have the other steps in place — you know what you’re offering, who you’re offering it to, and how you’re going to reach them, focus your enrollment skills. Certain investors expect copious amounts of “due diligence” materials — financials, projections, analysis of competitors, and more. Others go on gut and their sense of your own passion and commitment. Approach potential investors with confidence: if you find an investor who seems like a good fit, they will likely grasp the value of your offering, and be excited to say yes.
Most investors consider a lot more than just returns when they decide to invest: they’re looking at values, vision and purpose as well. They’re often satisfied with a lower financial return that those demanded by angels and venture capitalists. Your offering may well align with their beliefs — and they may be eager to help you challenge the status quo. It’s critical to create as much alignment as you can between what you want and what your investors want — and if you take your time in finding the right capital, you likely will.
Jenny Kassan is an attorney, a certified transformational coach, social entrepreneur, investor and finance innovator. Her formula for mission-aligned capital raising has helped diverse entrepreneurs raise millions of dollars on their own terms. She runs her own firm and is president of Community Ventures, a nonprofit dedicated to community economic and social development. She is author of “Raise Capital on Your Own Terms: How to Fund Your Business without Selling Your Soul“.