Money is tight these days. Whether you’re an entrepreneur seeking capital to grow your business or you work at a major corporation and you’re looking for capital to fund your project, you have a big challenge in front of you: how do you get someone to give you their money?
Yes, it’s their money. For entrepreneurs, you’re trying to pry it away from banks, angel investors, and venture capitalists. For corporate types, you’re asking for it from shareholders, senior executives, and profit-generating business units (for the purposes of this post, I’ll refer to all of these groups as “investors” for the balance of the article).
But gone are the days of easy money based on loosey goosey “business plans.” In this environment it’s much harder to get that check written.
So how can you pry open the pocketbook, get the capital you need, and grow your business or fund your project? You have to be sure to tell the people with the cash three key things before they’ll even consider giving you a dime.
The first thing on your investor’s mind is how much you want and how much you’ll make. They lend money or invest for a return. Mostly they don’t care how cool your idea is. They simply want to know how much of a return you’ll provide them on their capital.
And DON’T go into the meeting with a hockey stick. You know what I’m talking about… the long, flat financial projection that shoots ever-skyward in the out years in a shape resembling something Gretzky carried around. You lose all credibility when you go in with such projections.
Instead, go in with a reasonable, bottoms-up plan that shows exactly how you’ll invest the money and how you’ll make a solid return over time.
Investors want to make their returns as quickly as possible. They’re looking to you to provide them a sense for how soon that will be. Again – resist the temptation to provide overly-optimistic projections as they’ll immediately be discounted.
You’ll need to show the timing of investments, major project or growth milestones, and the timing of financial returns (remember – a dollar ten years from now is worth much less than a dollar today).
Your investors want this information because they’re looking to make subsequent investments with the gobs of money you’re going to return to their coffers.
When you say stupid things like “we don’t have any competitors” or “this project can’t fail” your prospective investors will likely say “thanks but no thanks.”
You need to candidly and directly address major risks to your business or project because those risks also put your future returns at risk. It might seem counter-intuitive to tell investors about risks to your plan because you think those risks will scare them off. News flash: they’re even more scared of an entrepreneur or business leader who wears rose colored glasses and can’t effectively spot problems before they happen.
Expound upon the risks ahead. Adjust your returns accordingly. Paint a spectrum of riskiness for your investors by providing a best case, expected case, and worst case set of scenarios. Either you can assess the risks and build their confidence in your vision or you can be silent on the matter and allow them to assign their own less informed assessment of risks upon your endeavor. Your call.
So when seeking funding, remember – tell them how much, how fast, and how risky. Doing so should dramatically improve your odds of getting money especially when compared to going in with a fast, riskless, hockey stick story…