How to Find Startup Capital

I have this conversation at least once a week.  Some visitor to my site on financing startups spends a couple of hours reading all, or most of it, and decides to call me up. The conversation then, almost invariably, goes like this.

Caller: Hi, I read your site. It's fantastic, by the way. Look, we've been trying to raise X dollars for over 6 months now, without any luck, and we're starting to get desperate.

Can you help us raise X dollars?

Me: Well, it doesn't really work that way in real life. Raising money is actually all about relationships and personal trust. Let me put it this way. You have three basic financing options out there.

The first and best bet consists of your former investors. These are people who gave you money in a previous deal and made off like bandits as a result. They know you, trust you, and believe in you.

Caller: Hey! That makes perfect sense.

Me: Your next best bet consists of the "3Fs", otherwise known as "family, friends, and fools".  This group includes dad, mom, uncle Ziggy, your Yale "frat bro" Chipper Drysdale III, and anyone else foolish enough to fall for your pitch (e.g., your dentist).

Caller: Got it!

Me: The final option is to get creative and do what most of the great entrepreneurs did at the beginning when they were in your shoes and couldn't raise a dollar either. This third option is what my Smart Startup Guide teaches you how to do. It teaches you how the greats started with minimal or no capital. It goes into great detail about their strategy and tactics.

Caller: Well, I'll be danged! Wish I had known all this 6 months ago.

Me: So, Mister Caller, let me ask you if you have any previous investors whom you made rich and who trust you?

Caller: Ahh, no I don't. I have never made money for anyone. This will be my first business.

Me: Hmm, okay, let's work our way down the list. What about the 3Fs? Do you have any family, friends, or dentists who would be willing to gamble their savings on you simply because they like you?

Caller: Ahh, no I don't. My family is not rich and I didn't graduate from an Ivy League school.

Me: Hmm, well then you need to forget about raising any outside money for the time being. Instead look at devising an alternate strategy for launching your business. You need to show potential investors that you have what it takes to create some cashflow first. Then they might take you seriously enough to invest.

Caller: Wow, I never knew any of this stuff. This explains why we haven't been able to raise any money with our business plan despite 6 months of pounding on doors and doing "dog and pony shows" for angels and venture capitalists.

Me:  Yes, it does explain it. Investors only invest in entrepreneurs they know and trust--or those who have proven the viability of their idea with actual cashflow.

Caller: Sure looks that way.

[There's usually a short pause here before the final question.]

So, can you help us raise X dollars then?

~

At this point I usually feel like banging my head down on the desk. So if you are tempted to call me about helping you to raise capital, please don't. I wrote the Smart Startup Guide for people who have wasted 6 to 18 months of their lives in a futile capital pursuit. After this much time they have either become realists or quit. But both finally understand that a business plan alone means little to investors. So feel free to invest or not invest in the Guide, but please don't call me about helping you to raise money. 

I decided to post this because the number of entrepreneurial wannabes who waste 6 to 18 months chasing capital with nothing more than a business plan is absolutely staggering. They might as well just stay at home for the same period buying lottery tickets. The odds of success are about the same.

So what's the take home here? First-time entrepreneurs should focus on proving that they can generate some cashflow first. The investors will follow. Don't fall for the hype from the business plan industry which tries to fool you into thinking that all you need is a well-written plan.

Comments

[Malachy]

Pretty funny yet true. Lesson: don't be a lamer who waits and waits for a good samaritan to come along.

[Daniel Markham]

What a really great post! You hit the nail right on the head!

So.

(pause)

Can you help us raise X dollars then?

[John]

You can offer practically any kind of service using the internet. You just have to make sure there is a market for it and that you can actually fulfill job orders. Some of the most common internet jobs involve clerical jobs such data entry, performing tasks as a virtual assistant, web development, word processing, telemarketing, book keeping and others. You can work as a copy writer, be a sales representative or even become a pro-blogger. You can set up a business that targets clients in your own town or people halfway around the globe.

[Timothy Sevelis]

I completely agree with what the article says. It's basically spinning your wheels and the harder and deeper it is to get out of the "rut" you've expelled so much useless energies.

[Timothy Sevelis]

I agree with what the moderator says about raising angel financing and venture-capital.

Your next best bet consists of the "3Fs", otherwise known as "family, friends, and fools". This group includes dad, mom, uncle Ziggy, your Yale "frat bro" Chipper Drysdale III, and anyone else foolish enough to fall for your pitch (e.g., your dentist).

You really have to pound the streets as if this is looking for a job; which really it is. The job of an idea and of leadership.

[Len]

So entrepreneurs are con men who need "fools" to fall for their scam? Interesting, but I think the article title that suggest information and gets you to read how hopeless it is unless you buy my book is more of the long shot lol ;)

[Peter]

Len, you need to read it again. It has nothing to do with dishonesty and everything to do with the fact that rookies are unproven entities. They need to prove themselves first.

[P S N Raju]

Great......

But I wish if someone would invest for ENTREPRENEURS to make his plan reach post validation stage

[Michael]

This world stands on simple rules. The article is great in more than one sense, but the greatest, as shown by P S N Raju, is always try wearing other people's shoes. Imagine, you have more money than you know what to do with and ask yourself a question: is there at least one good reason why I should invest into this particular idea? If the answer's positive, your idea is worth pursuing the investment. Otherwise just keep wishing.