Six MORE Things to Know & Consider before Seeking Capital Investment
New Voices Foundation is committed to seeing women of color entrepreneurs secure the capital needed to successfully run their businesses. In our previous article, “6 Things to Know Before Seeking Angel or Seed Investment,” we addressed some foundational issues all founders should think about before trying to access capital. As we have continued to engage with founders and funders, we’ve identified a few more things that we believe are pertinent to being prepared to access funding via angel investment or any other means:
#1 Start with the end in mind.
As the old adage goes, if you fail to plan, you plan to fail. Before you go out seeking investment, you have to make a plan. Based on where your business is, what is the amount of money you need for your business to run at an optimal level?
Ask yourself these questions to help you decide on your number:
- How far from your optimal number are you?
- How much debt are you willing to take on to meet your optimal number?
- How much equity would you be willing to give up to get there?
#2 What impact are you hoping for?
Many entrepreneurs believe that almost every problem in their business can be remedied with money. However, few entrepreneurs take the time to sit and map out how access to the funds they need/ think they need will or could impact the workflow, infrastructure, and overall function of their company. Funding can have long-lasting effects on your business. If you are considering raising capital, you should have a clear vision of what it would look like in your business.
Consider the following questions:
- What will be the outputs— items produced or milestones achieved— using these funds?
- What will be the outcomes— long-term effects of the funding—on/for your business?
- What is the potential value-add beyond the money?
Note that most often, money is NOT the most important need you need to be met. In very many cases, the issue that holds an entrepreneur back is a lack of viable relationships. As such, when seeking investment and thinking through the value-add beyond money, one should consider:
- Does this potential investor have the bandwidth and network needed to help you grow your business?
#3 Time, terms, and reporting matter.
Time: Just as receiving capital impacts the workflow and infrastructure of your business, the search for capital investment can be equally as impactful on a growing business. According to expert investor and financial advisor Melissa Bradley, “raising money is a full-time job.” Starting that job means taking significant time away from one’s business. Can your business withstand the pressures of seeking investment?
The first questions you need to ask yourself before embarking on the journey to raise capital are:
- Do you have the time to commit to raising money?
- Do you have a team ready to absorb the work you may not be able to do while you are chasing investment?
Terms: Once you’ve established that your business does have the capability to run smoothly without you so that you can pursue capital for growth, you need to seriously consider the terms you are willing to accept if/when you are offered funding. Experts suggest starting with debt and converting to equity in your terms. This means taking an investment as a loan that would be paid back in a set time frame and then, as your business grows, revisiting those terms with your investor and converting the debt into an equity investment (offering them a piece of your company for their initial investment).
Reporting: Reporting to investors can be grueling. You must meticulously monitor your company’s use of funds and overall growth. You also have to be prepared to get negative feedback about your company’s progress or lack thereof. Ruminate on the following question:
- Are you emotionally and systematically ready to do the required reporting?
#4 “It’s too early” can mean various things.
When potential investors are giving feedback, the phrase “it’s too early,” is commonly used to let an entrepreneur down gently. However, if you are on the receiving end of this comment, it can be confusing. One might feel compelled to retreat when feeling the weight of rejection, but that would be a mistake. Use the opportunity to gain clarity about where you stand with that particular investor. Ask for clarity. Consider the following questions:
- How do you define early stage?
- What do I need to have to come back to you?
The answers to these questions will illustrate a clear picture of whether or not future investment from said investor is a possibility which could save you time and energy pursuing them. If their answers denote indifference or lack of interest in you or your business, you know you need to use your time to pursue investment elsewhere. If they do give you a tangible idea of what is needed to possibly secure their investment, then you have a road map to work with as you work toward being investment-ready.
#5 Don’t be afraid of math.
Financial statements and all that they entail can be extremely intimidating as a business owner. However, taking a blind, deaf, and/or dumb approach to your numbers will leave you investment-less.
What numbers, you ask?
- Net Profit
- Personal investment
- Customer acquisition cost
- Customer churn rates
- Break-even point
- Accounts receivable turnover
Knowing your numbers is important and empowering because when you know them, they can be utilized as a tool in your strategy. The more you know, the more tools you have to leverage on your quest for capital investment.
#6 Don’t take any of this process personally.
You are not your business; your business is a separate entity from you as a person. An investor deciding to invest or NOT invest in the potential of that venture does not reflect on your personal worthiness. The process of securing capital can be daunting enough without conflating the two. Before starting the process of raising capital, consider developing a wellness practice that allows you to center yourself and stay present with the idea that you are not your business.
Consider watching the New Voices Learning Lab™ LIVE: “Founders’ Entrepreneurship Wellness Chat” for some ideas and/or signing up to try meditation using the New Voices Family The Shine App.
When seeking capital investment, there are a lot more considerations than just a perceived need for cash. There are layers to the process, including the logistics and foundations of knowledge needed. Also, one should consider the time, human resources, and physical, mental, and emotional strength required to undertake the task at hand. Working in a space where most–maybe not all– of the above-mentioned are aligned provides you with a solid foundation to start your journey.