Or Where Do You Rate on the Entrepreneurial Scale?
Are you looking for lists or directories of investors who will give you money? Are you considering paying for such a list?
One word: Don't!
Raising capital for your new business doesn't work that way. You can't just call up a complete stranger out of the blue and expect them to give you money. Imagine if the situation was reversed and your telephone rang and triggered the following conversation:
Hello?
Yes hello! I got your your name from a list of investors I purchased over the Internet. My startup needs $X to launch and it would just be totally awesome if you could invest your hard-earned money in it. I can send you a copy of our business plan which clearly shows what a great opportunity this is.
What would you be thinking? You'd probably be thinking, "Who the heck are you? Where did you get my name?"
In order to win capital, the provider has to trust you but trust takes time to build. People need to get to know one another over an extended period. The minimum time is in the six to twelve month range. In most cases, the more face time you can get with a potential investor, the shorter the time frame for establishing the minimal level of trust you will need.
During this phase you need to meet with them regularly and demonstrate your competence as an entrepreneur by continuously moving the project along. Polishing your business plan and PowerPoint is not considered tangible progress. What you need to do to win confidence and trust is to find a way to generate some cash flow.
Where are You on the Entrepreneurial Scale?
Imagine a scale of 1 to 10 on which we rate a person's entrepreneurial savvy with 10 being the highest and best. Writing a business plan and then waiting for some good Samaritan to come along and fund it rates a 1. Finding ways to create cash flow with a transitional model starts to move you into the 5+ range. By transitional I mean finding a way to get started with perhaps a piece of the original concept or with a related product or service. Let me give you an example. Oftentimes individuals or teams seeking funding for a new technology will engage in providing consulting solutions for the same problem that their technology will solve once funded. This approach achieves two key objectives: 1) it demonstrates that the entrepreneur knows how to create cash flow, and 2) the relationship starts to build trust with clients who might be in a position to invest in the project.
Entrepreneurs who can launch a company quickly without waiting for some stranger to give them cash rate a 9 or 10 on the scale. Back in the late 1980s, I was working with a consulting firm providing financial expertise to technology companies from Los Angeles to Vancouver. During that time I was given the opportunity to work with entrepreneurs who rated as 10s on the scale.
So, if you're sitting there waiting for a stranger to fund you so that you can get up and start building the business, understand that you are operating at the 1 level and that's not a good place to be. Moreover, no one with money will take you seriously.
Finally, there's another reason not to pay money for those lists of investors and lenders. It's called the Internet. To find investors, focus on the local because face time is crucial for success. You do this by searching, "your city, venture capital firms" or "your city, angel investor groups." (By the way, this blog lists all the angel investor groups and their contact info by city or state. And it's free.)
Three associates and friends have been burned by these sellers. One spent $500 on a list of venture capital firms. Can you believe that? He's otherwise smart a whip with a Masters from MIT.
Posted by: Jeffrey Holden | May 28, 2009 at 02:49 PM
Great idea. I'm probably a 3 on your list and aim to improve m score.
Posted by: Tim Marsden | June 02, 2009 at 10:54 AM
Thank you for the free list of angel investors on your blog. I am appreciating it very helpful.
Posted by: rajiv | February 23, 2010 at 02:26 PM
im a young man that has a company that has the potential to big really big just need some help getting it to a better stage im taking orders out of my house its called WILL WEAR APPERAL name william boards william_boards@yahoo.com
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