Ddutton and all the others that are seeking funding for their entrepreneurial endeavors please be advised that there’s no shortcut to early-stage investors!
What doesn’t work:
Investor Sites/Investor Unions
First, let’s get started with these so-called investor circles, unions, etc. or sites that are promising you to get you in front of investors. Well, most of them will work – just not for you. The reason for that is simple. Most of the people who operate these sites really don’t have the business acumen and experience to put together a portfolio of quality investment opportunities that investors might be interested in. And even if they do, having to decline those that are not up to par would essentially mean they would have to decline about 60%-70% of the applicants or 60%-70% of their business! Since most of them are not licensed/registered as broker-dealers, they can’t operate on a contingency fee basis – meaning the only way for them to make money is letting anybody in who’s willing to pay their subscription fee.
In addition, let’s employ some common sense. Check out the traffic stats for some of these sites on http://www.alexa.com
. Would you be surprised that some of them have a traffic rank that is probably below the one of your site? So, if they claim that hundreds or thousands of qualified investors screen investment opportunities that are posted on their site, I’m wondering how they do that, given that they have an average traffic rank that is hovering around 1,000,000 with an average page view/visit of 3 and below? Come on!
Ok, let’s employ some common sense here. Most reputable investors aren’t soliciting investment opportunities through posting messages such as “Investment Money Available” or “Looking for Projects”. In all likelihood, these posters are either operating some of the aforementioned websites and want you to subscribe or they are looking to charge you a fee for reviewing/improving your business plan or other documents.
What does work:
Shopping your business plan
If you are in the market for venture capital, do your homework. First of all, make sure you meet the criteria for venture capital investments in general. Second, identify and screen venture capital firms based on their investment criteria and portfolio companies. A good thing is if your venture can generate synergies for, provide valuable services to, and/or otherwise benefit the competitive position of one of their portfolio companies. So, if you can’t get a referral from someone they know, this is probably the next best thing. Don’t bother to mail out your business plan without having talked to them first. Most bigger firms have entrepreneurs in residence on staff, who are basically your peers and easy to talk to. Try to win them over first.
Attend venture breakfasts and seminars
If you live in a bigger city or metropolitan area, get in touch with your local chamber of commerce and see if they know of any events that would help entrepreneurs get in touch with venture capitalists or angel investors. Be wary of sponsored events that require a huge fee to attend.
Team up with a reputable professional
If you think that the task at hand is beyond your capabilities, team up with a seasoned professional with a proven track record. Like in many other professions, professionals who are successful in this field usually have no trouble pointing you to some of their success stories. Don’t fall for testimonials like “JasonF, Philadelphia: “ABC Partners did a great job securing $1.2 million for us”.
Consider alternative funding sources
I’m sure by now you will probably know that venture capital or angel investments are not the only option to fund your venture. Do some research to see if a private placement or Regulation D Offering is right for you. Although doing a private placement of your securities can be a complex and daunting process, but at least you and your team will be in charge of the entire process. If you are interested in further exploring this financing vehicle, we have two articles available on your website that you may find interesting:
Private Placements – Myth or Real Option?
Private Placements – Finding the Right Investors
Sample Private Placement Memorandum
Employ common sense
There is this old saying: “If it looks like a duck, walks like a duck, and sounds like a duck, it’s probably a duck!” So if you feel that whoever is trying “to help you” arrange financing for you venture just doesn’t feel right, walk away.
I hope this clears things up, at least a little bit.
FastVentures8/14/2008 2:40 PM
Advanced Document Design for entrepreneurs, intermediaries, and the financial services industry.