The Six Secrets of Raising Capital: An Insider's Guide for Entrepreneurs

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Based on Bill Fisher's three-day seminars that regularly sell out all over the world, this book offers the kind of capital-raising street smarts no entrepreneur can do without. As a banker in Silicon Valley in the '80s and a businessman who founded a number of successful companies beginning in the '90s, Fisher has seen firsthand the kind of rookie mistakes aspiring entrepreneurs make that end up stopping them before they have a chance to get started. Fisher looks at six traditional steps in the capital-raising process and digs beneath the surface to expose subtle but critical aspects of each-knowledge that, until now, could come only with experience. For example, entrepreneurs believe that great business ideas get funded. Not true-just look at the failure rates of venture-backed companies. Great business stories get funded, and all great business stories have a similar construction and shape. And of course the entrepreneur needs an investor, but each investor comes with his or her own personality issues. You need the right match for long-term success, not just whoever is waving the biggest check-a temptation that is easy for cash-strapped entrepreneurs to succumb to. Having this book is like going into your investor meetings with a trusted advisor who knows all the ins and outs of raising capital.

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Secret 1 Great Business Ideas Do Not Get Funded

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Intuit, a $20 billion global high-tech company born and built in the Silicon Valley, was never able to raise a single dollar of venture capital funding, despite seven years of pitching investors. Hotmail, founded by Sabeer Bhatia, and ultimately bought by Microsoft for $450 million, was not able to raise funding, despite desperate attempts to gain interest from angel groups, seed investors, and venture capital firms, until they had already gained traction with hundreds of thousands of users. On the other side of the coin, five out of ten companies that receive venture capital investment fail within three years. Clearly, something else is at work here, beyond the intrinsic merit of the business idea. If great business ideas do not get funded, what is the answer? You can see the outline of this answer in that familiar quote from the famous British economist John Maynard Keynes, that “business decisions … can only be taken as a result of animal spirits.” What is it that triggers our animal spirits, what moves human emotions? Is it facts? The English novelist E. M. Forster makes a useful observation about the relative value of facts. Here, he says, are the facts: The queen died, and the king died. And here, he says, is the story: The queen died, and the king died of a broken heart. Which phrase touched you just now? Which way of telling gave you a rush of emotion? Humans are motivated, moved, by stories. And notice that the second phrase doesn’t ignore or exclude the facts, it incorporates the facts into a story. And there is your answer: Great business stories get funded.

 

Secret 2 No Investor Will Read Your Business Plan

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Investors will not read your business plan for the same reason that book buyers do not first read the book they are interested in buying. What readers “buy,” initially, is the title and the look of the cover; then, if interested, they proceed to the blurbs on the back cover, made up of intriguing praise from various luminaries, or perhaps they might research an online review or two. Then, if piqued to further interest, they might read the summary of the book on the flap of the book jacket, or perhaps even dip a toe into the first few paragraphs of the author’s writing. Then they make up their minds. If you have purchased this book, it is doubtless the familiar pattern you have followed. But reading the entire book? Of course not. That is an altogether different matter, something that happens much later, or never, as many thousands of books quietly gathering dust on forgotten bookshelves can attest. And even when the book is read, that happens long after the purchase is made.

By the time you are ready to move forward with the second secret, you will have already spent long hours analyzing your risk, detailing your budget, and identifying your competitors. Your team is assembled, or assembling, and their credibility and capabilities are quantified. You understand the problem and know exactly how your solution can solve it. Your story has been written, reworked, practiced, and reworked again. You are able to tell your story up through the happy ending, and people are able to follow along without puzzling looks. Armed with your new compact story that takes people from sadness to joy in one to two minutes, you are ready to steal the breath of potential investors. But not so fast.

 

Secret 3 Money Has a Personality

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In the entrepreneur’s ideal world, they would have one meeting and secure funding. Unfortunately, the world does not revolve around the wishes of entrepreneurs. You will likely endure scores of meetings before you are connected with an investor who has any interest in owning a piece of your business. Even though the one-meeting-and-done model is a pipe dream, you can greatly increase your probability of early funding by pinpointing the right type of investor before you begin networking.

When you reach this point of the process, you will have polished your bulletproof speech, you can tell it in one to two minutes on command, and you have an essential kit of high-impact materials. Now, before you start knocking on doors and telling your story, you need to determine which doors are most likely to welcome your knock. You need to take the time to research different investor classes to decide which group will have the most interest in funding your business idea and can be your best long-term partner.

 

Secret 4 Dating Is Your New Job

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As the founder and leader of your new business, you may have the noble vision of yourself as rallying the troops to charge into, do battle for, and ultimately conquer rich new territories that your business will then own. You are King Leonidas, leading three hundred Spartans into battle with the Persians in the movie 300: fierce, heroic, iron-willed.

The role you need to prepare yourself for, however, is one that is much more familiar, if not nearly as heroic. The effective model for building your business is more like light-hearted romance than war. You are Bill Murray, in Groundhog Day.

After choosing the investor class, or classes, you think best fit your business, and targeting within those classes the specific investor firms or individuals that look like appropriate matches, you should have a collection of about ten high-probability investor options. Now, certain that you have good potential matches, you can afford to allot a significant amount of time to beginning a relationship with each investor. It would be unnatural if you were not somewhat nervous about how this process will develop. Fortunately, it is going to follow a pattern with which you already have experience. Developing a relationship with each investor is going to follow a path that is eerily similar to dating:

 

Secret 5 Raising Capital Can Cost You Your Dream

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After you have met hundreds of people and been bounced around from referral to referral to referral; after you have given scores and scores of presentations; after you have dated and then seriously dated several interested investors; after you have retooled your model and fixed all of the kinks that the different parties mentioned when you broke up—somebody is going to fall in love with you and your business idea. You are going to experience waves of joy when you hear from an interested investor who says she is going to make an offer.

You will be reaching for the champagne that you chilled months ago in anticipation of this moment. Your head will be in the clouds, and you will want to sit back with the bubbly and reflect on all the hard work you have put in. At many points along the way, you will have been plagued by self-doubts, about your business idea and about your own sanity in pursuing the idea of founding your business. Now someone is telling you that she believes in you and your business idea enough to write you a check for more money than you may have imagined was possible. You are already thinking about who to call first to spread the good news.

 

Secret 6 The Wire Closes the Deal

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Your funding round will close—meaning your round of capital raising will be at a final, irreversible conclusion—when the investor’s money arrives in your business checking account. Ka-ching! Until then, however, nothing is certain. The deal is so close … but there is still reason to hold your breath. At this point in the process, you have successfully scrambled through all the tortuous terrain in your exotic journey from just another wannabe entrepreneur to Funded Guy. You are exhausted, but look, there it is, you can see the finish line. And with the precious transaction documents now ready to sign, you would think that all that remains is pen and ink, a bank wire, and measuring your head for the correct size of victory crown. This is not what will happen. Ever.

Your deal will never close unless you firmly control the ever-present danger of chaos. At this stage you are going to find yourself in the middle of a classic Three Stooges episode. Everything that can go wrong at this point will. Each time you have readied yourself to receive your well-deserved congratulations, just when you have finished practicing the wonderfully self-deprecating remarks you intend to use to answer the crowd’s exultant applause, someone will shove a cream pie in your face. Welcome to closing the deal.

 

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