The well of private capital runs deep. Even in a pandemic, after a brief hesitation the taps have been turned back on. Is your business in shape to take advantage? Here are four things you could be doing right now to get capital-ready.
Fundraising is often about, above all else, creating trust. That includes not only positively generating relationships, but also avoiding red flags. Investing with an early stage manager or company is often gut-driven, and guts don’t react well to red flags. So where does that lead us first?
Your finances. Even if you weren’t looking for capital, you should know your financial situation in and out. It’s just good business. This can easily (and understandably) get left behind in a company’s early stages when you are more focused on survival than spending a week in your Quickbooks. Less understandable, but also common, is being so consumed by your big idea that you neglect the small stuff--like where your money is going. Like Joni says . . . don't it always seem to go that you don't know what you've got 'til it's gone.
Then there’s your corporate structure. What corporate structure, some of you might be saying. When you started your company you created a business entity of some kind (corporation, partnership, LLC) to house it. You may not have thought of your corporate documents since they were created. But somewhere, in an old folder (digital or hard copy), are the formation documents that set out the ownership and management structure of your company. Now’s a good time to dust those off and update them to reflect your company’s current reality.
Now, why do you need this money again? Your answer needs to be clear and compelling. This is really a two-parter. The first part is how will you use the money--where is it going and how do you project it will impact the company and its valuation? Then, are you sure you need to raise it with equity? If you are a healthy, revenue-generating business that isn’t looking for (or isn’t reasonably anticipating) quick growth, a boring old bank loan may be the better choice.
Now that you’re organized and have your thoughtful, logical pitch ready to go, all you need are some people to share it with. More now than ever, there is no substitute for a warm introduction. Most of us will not get the opportunity to create a connection in person, so we need someone to pave the way for our first meeting. Look at your list of current investors and advisers. Who on that list is likely to have a network of other accredited investors? Probably most of them. Then you just have to ask. One of many things I’ve learned from rewatching The Good Wife: people like to be asked for help. So go. Do it now. And let us know how it goes!