How do I find funding for my idea?

Gregg Fairbrothers:  Raising money is a long, time-consuming, and often demoralizing process. The best way to find funding is to have found ways to eliminate some of the big early-stage risks before you look for funding: is there a working prototype or product?  Do you already have paying customers, proving people will buy? Are you seeing revenue growth? Selling ideas is hard; execution sells.

  1. First you should decide how much you need, what you will spend it on, and how that work will produce some incremental bump in value that either justifies more investment or gets you to where you can grow without outside investment. This is a story you will need to tell investors.
  2. Always think carefully how much of your own money it’s wise to put into your own venture, and when. Always keep some back for a tight time when you might really need it. Same answer for money from friends and family.
  3. Consider where you are going to look for the investment, taking into account the type of company you are, what market you are in, how far along you are, and what magnitude of investment you need. For example, what’s right for angel investors often won’t work for venture partnerships, and vice versa. Look at who investors have backed in the past and take your cues from that. Investors tend to specialize in certain stages and certain sectors.
  4. You will need a compelling story that investors should want to invest in. If you aren’t sure you have one, find out. Many investors are glad to give advice to help shape a project until it’s right for financing.
  5. Choose your investor targets wisely. The best investors bring more value than just their dollars. Good investors are worth a higher cost of money (aka, lower valuation) than purely financial ones.
  6. Get a referral to the investors. Unsolicited submissions are seldom seriously considered.
  7. If you get interest, look quickly and aggressively for more. Nothing gets an investment done sooner and on better terms than a little competition. Remember: if you’re only dealing with one party, you aren’t negotiating, you’re begging.
  8. Never close a serious equity round without good legal counsel.

 

Oron Strauss (MOST Ventures, LLC and Pantheon):    Angel and seed investors are terrific resources for entrepreneurs, especially today when you can do so much with less capital. As a first-time entrepreneur fresh out of college, I had great angel investors in Net.Capitol, Inc. They included a now highly-influential and successful VC who mentored me through many key issues. And we had another big-name angel investor and board member who (exceedingly frustratingly) nearly scuttled our deal to sell Net.Capitol by insisting on a larger cash component in the deal. Yet at the end of the day his insistence saved the deal’s value when the equity component imploded during the dot.com crash.  While angels may or may not be professional investors, most angels are professionals and that occasionally means tough love and frustrating conversations. But realize these investors are showing they trust you when they give you money, and from that moment your interests really are aligned, typically much more so than with institutional investors. Chances are, angels will be willing to help you in many ways. So keep current with your angel investors! Time is always short for an entrepreneur, but spending time informing angel investors and seeking their input is more valuable than you can imagine. I know I missed multiple opportunities to take advantage of these relationships, ideas, and the goodwill of a great group of investors because I didn’t engage them often enough and provide them chances to help me.  
 
At our private equity partnership, MOST Ventures, LLC, we believe investors should add value as active, even CXO-level participants in our portfolio companies. This isn’t to say you should always hire your angel investors, but angels can be fantastic resources – and not just for their money.

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