All high-growth businesses require risk capital.
Finding the right investors at the right time and then getting them to write checks is one of the most challenging things about entrepreneurship.
I’ve always referred to this as the Entrepreneur’s Path – the milestones, sources, and amounts of capital needed at the Concept, Seed, and Startup Stages of a company’s development.
I’ve yet to meet an entrepreneur who wasn’t thinking about, talking about, or worrying about how to raise funds. It’s the one thing I’ve found that the thousands of entrepreneurs I have had the pleasure of working with over the years all have in common.
Securing funds can be all consuming. But it doesn’t have to be.
At TechColumbus we are continually engaged with hundreds of entrepreneurial firms from Concept through Seed and Startup to Early Stage. With more than $20 million of new investment capital under management, our job is to help our client entrepreneurs build and accelerate great companies, while delivering a financial return to our partners, and wealth and job creation to the state.
In a sense, we wear two hats. We help early stage entrepreneurs become fundable, and, when appropriate, we invest directly in startups in Central Ohio. We follow a proven model — one based on both entrepreneur and investor perspectives — that advises entrepreneurs how to improve their access to risk capital.
That model is based on matching sources of capital to the milestones that reduce risk. It’s a mindset and process that makes fundraising less complex and more successful.
1. Get focused: Think like an investor and embrace these three fundamental concepts about raising capital.
- • At each stage of a new company’s existence there are critical milestones required to succeed at that stage. Map out those milestones. Seek advice from advisors and investors to understand the sequence.
- • As a company achieves its milestones, it incrementally reduces the risk that it will fail. As companies become less risky, potential investors become more interested. Their interest increases the chances of raising scarce, early-stage capital.
- • Each stage of a new company’s existence has a corresponding source of capital. Focusing on the correct capital source matched to achievable milestones at each stage increases an entrepreneur’s odds of success.
2. Get real: Develop a mindset and approach that keeps the company and management focused and on track.
- • Create a realistic capital plan that targets capital needs and sources to critical milestones.
- • Be prepared to take personal financial risk. If you aren’t willing to invest in your company, how can you expect others to invest?
- • Accept that raising a significant amount of external capital initially is not likely, necessary, or perhaps even desirable. Companies like Apple, Dell, and Papa John’s Pizza started with less than $20,000.
3. Get going: The sooner a company reaches profitability the better, but until then, there are lots of ways for creative entrepreneurs to get from idea to prototype without raising lots of capital.
- • Many successful entrepreneurs bootstrap their businesses by using imagination, know-how, and hard work to raise cash through revenue, without raising equity capital. Entrepreneurs who bootstrap make interesting companies.
- • Regardless of how successful you are at raising capital, sooner or later every new company is cash strapped. Until the company reaches breakeven (typically three or more years), cash is king. From day one, make every quarter spend like a buck. In the words of Yogi Berra, “A nickel ain’t worth a dime anymore.”
- • Don’t jump ahead and try to attract capital from an investor before the company reaches the stage where an investor likes to invest. It’s a waste of time.
- • Seek concept funding through federal grants or early-stage investors such as TechColumbus.
- • Angel investors want to see at least a working prototype.
- • Venture capitalists don’t invest in Concept Stage or usually even in Seed Stage deals. They invest in companies that are near to or have achieved revenue.
Focusing on the correct capital source to fund achievable milestones helps keep an entrepreneurial team’s resources and energy focused on building great products that customers want to buy.
And that’s the secret to every successful startup.