The Smart Startup Guide
How to Raise Money for Your Startup
I have this conversation at least once a week. Some visitor to my site on
financing startups spends a couple of hours reading all, or most of it, and
decides to call me up. The conversation then, almost invariably, goes like
this.
Caller: Hi, I read your site. It's fantastic, by the way. Look, we've been
trying to raise X dollars for over 6 months now, without any luck, and we're
starting to get desperate.
Can you help us raise X dollars?
Me: Well, it doesn't really work that way in real life. Raising money is
actually all about relationships and personal trust. Let me put it this way. You
have three basic financing options out there.
The first and best bet consists of your former investors. These are people
who gave you money in a previous deal and made off like bandits as a result.
They know you, trust you, and believe in you.
Caller: Hey! That makes perfect sense.
Me: Your next best bet consists of the "3Fs", otherwise known as "family,
friends, and fools". This group includes dad, mom, uncle Ziggy, your Yale
"frat bro" Chipper Drysdale III, and anyone else foolish enough to fall for
your pitch (e.g., your dentist).
Caller: Got it!
Me: The final option is to get creative and do what most of the great
entrepreneurs did at the beginning when they were in your shoes and
couldn't raise a dollar either. This third option is what my Smart Startup
Guide teaches you how to do. It teaches you how the greats started with
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The Smart Startup Guide
minimal or no capital. It goes into great detail about their strategy and
tactics.
Caller: Well, I'll be danged! Wish I had known all this 6 months ago.
Me: So, Mister Caller, let me ask you if you have any previous investors
whom you made rich and who trust you?
Caller: Ahh, no I don't. I have never made money for anyone. This will be
my first business.
Me: Hmm, okay, let's work our way down the list. What about the 3Fs? Do
you have any family, friends, or dentists who would be willing to gamble
their savings on you simply because they like you?
Caller: Ahh, no I don't. My family is not rich and I didn't graduate from an
Ivy League school.
Me: Hmm, well then you need to forget about raising any outside money for
the time being. Instead look at devising an alternate strategy for launching
your business. You need to show potential investors that you have what it
takes to create some cashflow first. Then they might take you seriously
enough to invest.
Caller: Wow, I never knew any of this stuff. This explains why we haven't
been able to raise any money with our business plan despite 6 months of
pounding on doors and doing "dog and pony shows" for angels and venture
capitalists.
Me: Yes, it does explain it. Investors only invest in entrepreneurs they know
and trust--or those who have proven the viability of their idea with actual
cashflow.
Caller: Sure looks that way.
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[There's usually a short pause here before the final question.]
So, can you help us raise X dollars then?
~
At this point I usually feel like banging my head down on the desk. So if you
are tempted to call me about helping you to raise capital, please don't. I
wrote the Smart Startup Guide for people who have wasted 6 to 18 months
of their lives in a futile capital pursuit. After this much time they have either
become realists or quit. But both finally understand that a business plan
alone means little to investors. So feel free to invest or not invest in the
Guide, but please don't call me about helping you to raise money.
I decided to post this because the number of entrepreneurial wannabes who
waste 6 to 18 months chasing capital with nothing more than a business plan
is absolutely staggering. They might as well just stay at home for the same
period buying lottery tickets. The odds of success are about the same.
So what's the take home here? First-time entrepreneurs should focus on
proving that they can generate some cashflow first. The investors will follow.
Don't fall for the hype from the business plan industry which tries to fool you
into thinking that all you need is a well-written plan.
Smart Startup Guide
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