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Money, Lots &
Lots of Money
by Jit Agarwal |
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Guidelines
designed to help your organization more effectively manage the fund raising
process!
Lets face it; you can never get enough capital. Almost regardless of what
business your running, in what sector or industry, or in what part of its
lifecycle, cash is a dear asset and more often than not, in short supply.
This article focuses on the five success factors that enable an
organization to raise funds.
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Get a Chief Money Person: Appoint someone within the organization to
have the full time responsibility of raising funds for the enterprise. Many
companies make the mistake of sharing this responsibility between multiple
individuals, or not appointing someone specifically chartered to take on this
task, or worse yet passing around the responsibility like a "hot
potato." No business can run without cash or revenue to support its
operations and if your organization does not have the revenue, and most
startups do not, then at your own peril ignore the counsel of having someone
exclusively focused on raising capital for your company. That is a natural
reaction, but one that should be curbed with a healthy sense of skepticism,
because no outside agent knows your organization they way you do not do, nor
can they sell it as effectively as you can. Therefore, while it often makes
sense to bring in outside support to help with this process make sure you hire
them for what they can bring to the table today, not what they've done in the
past, and always retain full control of the fund raising process.
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Never Stop: Raising capital is an ongoing activity, many large
organizations and even those that are publicly traded often go to the equity
markets, even after years of being in the business, and so it should be clear
to you that this process never ends. Think of it as a never ending "Ground
Hog's Day" with the one sweet reward of capital at the end of each day,
and you'll begin to get the picture. Many organizations make the mistake of
presuming that their last raise was exactly that, their last raise. This is
almost never the case. Even if they do not go back to the VC circuit to raise
capital, they will undoubtedly aspire to go to the public market, which puts
them back in the same position. The best model for raising capital is to
continue your funding efforts and related activities at a basal level as long
as your open for business, with the flexibility to ramp up when going into a
major funding event. Do not wait until the bank account only has six or seven
digits to go out looking for capital. Frankly keeping that low level of ongoing
fund raising activity will ensure that your continually in front of you target
sources of capital and greatly increase the odds of raising capital when you
really need it.
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Milestone Based Fund Raising: Many organizations begin the fund raising
effort for entirely the wrong reason. If you ask them why they are raising
capital, they will respond, "Because I need it." While this may be
entirely true for the entrepreneur, realize that this is not true for the
sources of capital. From the perspective of a moneylender it is much more
provocative to hear that the money raising effort is based on an inflection
point in the business. They want to hear and know that they money is going to
develop the next version of the product, tap into another market, or ramp up
production to hit massive volumes and revenues. Go out and raise capital, even
if you do not need it (see #2 above), based on major milestones your
organization has achieved and will continue to achieve. The most powerful tool
an entrepreneur can walk into a VCs office with is a milestones page that lists
all the major milestones accomplished and the next set on the horizon.
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The True Cost of Fundraising: Organizations often make the mistake of
calculating their costs of raising capital as equal to the cost of the
individual dedicated to the effort. Do not be fooled into presuming that this
is the case. A successful fund raising effort will often require people from
more than part of your organization and will definitely require more than the
involvement of just the person leading the effort. As an example, financials
have to be sorted, cleansed and interpreted, which will require resources from
that part of the company. The product road map will need to be defined,
articulated and explained to investors. A good example of a fund raising
activity that can chew up huge amounts of your key management's time is road
shows. Often these are required to successfully raise capital but can mean
weeks of travel and exhausting pitches to a multitude of investors.
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Look in Your Own Backyard First: Often organizations looking to raise
capital forget just how close to home that capital can be found. Some of the
best places for access to capital are the friends, neighbors, business
associates and industry associates of the key leaders of the company. The hard
part of establishing credibility, presumably already accomplished, with this
group makes selling the concept the main hurdle. This puts you one-step ahead
of going to a virtual unknown and asking for capital. It may be hard to
approach this group, but being one-step ahead should make this a definite first
stop for anyone.
These guidelines
are designed to help your organization more effectively manage the fund raising
process. Not all of the pointers may be applicable or even relevant to your
organizations. However, if even one of these points is useful then it will save
you one blind alley, in process fraught with them.
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