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We’ve all heard funding horror stories – a passionate founder finally reaching their funding goal only to lose control, be forced to abandon their values and eventually be kicked out of their own business. It happens – but it doesn’t have to happen to you. Collection of funding from the fair investors in the right terms takes time and effort, but it is among the most critical things you do as a business owner.
Using the right strategy, owners of a variety of small businesses, from coffee start-ups to high-growth tech companies, can find value-aligned investors. These relationships deliver lifelong benefits to all stakeholders – business owners, investors, customers, suppliers, the community and the environment. With the steps described below, you can find the right investors and avoid wasting time on unproductive and demoralizing fundraising strategies.
Step 1: Clarify your goals and values
Sometimes business owners are so busy with daily tasks that we don’t take the time be clear about the big picture. Before any investor exploration, ask and answer some key questions. Remember why you started your business in the first place: What is its purpose, what impacts will it have and where will it go? Your answers clarify your vision and your values, making communication with you easier and inspiring investors to join you on your journey. More importantly, you will have great success in connection with the right Investors – those who align with yours goals and values – and avoid wasting valuable time in unproductive conversations with the wrong investors.
One more important thing to be clear before moving forward: What are your non-negotiables? These are your values or needs that are not up for debate. The right investor will not ask you to sacrifice yours not negotiable. Creating boundaries around what issues are and are not open for discussion will help you prepare for conversations with those in a position to help you achieve your goals.
Remember, it is better not to raise money at all than to raise money that forces you to compromise what is important to you and why you started your business in the first place. Taking the time to be clear about your goals and values will help you design a fundraising strategy that is perfectly aligned with what you want.
Step 2: Identify the right investors
Finding and meeting potential investors can be a long and tedious process. You have a business to run! You don’t want to have meeting after meeting, which lead nowhere. In addition to being a big time suck, hearing “no” over and over can be demoralizing.
Focus your energy and time to identify the straight individuals to approach. Think outside the box! Don’t limit yourself to fishing in the same pond as all the other business owners looking for funding. Your ideal investor may not have a fancy office in Silicon Valley or wear a suit – 99.7% of American investors are not professional investors and do not identify as investors. You won’t find them in any investor database or meet them at a demo day. The key to finding the right investors is to keep an open mind about who your investors will be.
The 99.7% of investors we call “non-professionals” are incredibly diverse, and millions of them! Non-professional investors have most of their money invested in publicly traded companies and have never previously considered investing in a small business. That’s what makes them so great potential investors for you – do not have preconceived ideas about what an investment in a small business should be; they don’t have a massive amount of founders all competing for their attention; and they are likely excited about the possibility of directly investing in a small business that aligns with what matters.
Your ideal investors are likely to be people who are passionate about your company’s mission. This could include your current and potential customers, other businesses in your supply chain, activists who care about the problem your business is trying to solve, people who are positively affected by your business, people in your geographic region that want to maintain local wealth, and much more. Think outside the box to identify potential investors who aren’t the usual suspects.
Important Disclaimer: Do not start talking to potential investors about your investment offer without consulting legal counsel with expertise in state and federal securities law.
Step 3: Create your offer
What you offer investors will dictate your future relationship with them and is one of the most important decisions you will ever make for your business. Many attorneys and financing advisors offer a cookie-cutter, one-size-fits-all approach that may not be right for you. It is important to know that your offer can be tailored to keep the control you want over your business and for your investors to be paid without having to have an “exit” (that is, sell your company) first to be ready
When you take the time to create your offer to adapt to your particular goals and projections, make sure that the expectations of your investors are in sync with yours. Instead of sowing the seeds for future conflict, create alignment with your investors from the start.
Step 4: Choose your legal compliance strategy
Raising money is a highly regulated activity. You must comply with complicated state and federal laws when raising money or risk legal action from your investors and regulators. Most lawyers will say that you should only talk to accredited investors. Accredited investors are wealthy individuals and organizations. About 6% of the US population is accredited. That really limits your pool of potential investors.
The good news is that these lawyers are wrong! There are legal compliance strategies allowing you to raise money from a much wider pool of potential investors. Knowing which legal strategy works best for your situation will allow you to reach the right investors to help you achieve your goals. If you need a cheat sheet on the options you can choose when raising investment capital to ensure your offer is compliant, check out ours. here. Again, do not start talking to potential investors about your investment offer without consulting an attorney with expertise in state and federal securities law.
Step 5: Design your investor enrollment strategy
It is important to know what your ideal investors are looking for so that you can appeal to their desires and make a compelling offer. Here’s a hint: they’re looking for more than a significant financial return. Non-professional investors care about having a positive impact on their investments and the non-financial benefits of investing, such as being part of a similar community or access to cool perks. The more you know about what is important to an investor, the better you can make your offer compelling. And you will also quickly know if the investor is wrong for you so you can end the meeting early and avoid wasting time. The key to a successful sign-up conversation is authenticity – don’t hide your mission and what you’re passionate about in business. Instead, embrace your mission and find investors who want to support it.
Step 6: Face the obstacles head on
You need to have the right tools and support in place to be prepared for whatever happens on your fundraising journey. In most cases, fundraising is a marathon rather than a sprint. Day in and day out, you’ll experience ups and downs, from meetings that don’t go well and feelings of overwhelm to moments of confidence and euphoria. Here are some ways to deal with the obstacles you may encounter on the road ahead:
- Examine negative beliefs about asking for money and growing your business, and understand that there is very little truth to them. Dragging our misconceptions, fears and anxieties into the light of day often helps loosen their hold on us.
- Note the positive side. Almost every “negative” characteristic has a positive side. For example, if you worry that you are too cautious and do not take opportunities quickly, think of all the times that quality has helped to avoid mistakes. Reframe the negative descriptions to focus on the positive. You say to yourself, “investors will be lucky to invest in my company because I am such a careful steward of resources.”
- Remember that investors often struggle to find good opportunities. For the right investors, what you offer is at least as valuable as what you ask for, if not more. When talking to potential investors, start by asking a lot of questions about what is important to them. If it becomes clear that your offer is a good fit, be bold and make your offer.
- Be willing to say no to the wrong investor. If your gut is telling you that a potential investor isn’t a good fit, listen. Do as much due diligence on potential investors as you do on yourself. And listen to your head and your intuition (body, heart, spirit, gut…) when you decide to accept an investment.
- Remember that objections do not always mean “no”. In sales, objections are often seen as a “buy signal”. Sometimes, when investors ask difficult questions or make critical statements, they signal that they are interested, but they need to know more to feel comfortable. These questions and statements can cause joy – they often signal that you are getting closer to a yes!
Finding value-aligned investors is one of the most rewarding things you can do as the leader of your business. I hope this formula puts you in satisfying and mutually beneficial relationships with supportive, values-aligned investors.