The Seed Capital for Startups Blog

How to Raise Startup Capital: Lessons From Deal-makers

How to Raise Startup Capital: Lessons From Deal-makers

From working with entrepreneurs since 1986, I have noticed one glaring problem most have. Most have no idea how to sell their startup or deal to investors. Instead they just write a business plan and shotgun it out to everyone. Then after a few months, when no one has jumped on it, they start complaining that investors are "too stupid" to see how wonderful the investment opportunity really is.

What rookies fail to take into consideration are tangible economic incentives and psychology. Deal-makers, on the other hand, understand how to offer short-term economic incentives made all the stronger by appealing to psychological needs.

Would you like to learn how to put together B2B deals? If you answered, yes, get a copy of How Deal-makers Raise Capital.

Order it today before the price goes up.

How Deal-makers Raise Capital

Or get the full manual on creative startup financing.

How to Use Creative Financing to Start Your Business

Free Mini-Course in Creative Financing for Startup Entrepreneurs

Are you an Entrepreneurial Champ or Chump? Find out.

Champs are the ones who understand how entrepreneurial finance works. Chumps are those who sit around hoping that some kind stranger will give them money after reading their business plan. When it doesn't happen, they complain about investors being "too stupid." You can increase your chances of being successful in attracting capital down the road if you learn how savvy entrepreneurs are always moving their companies forward.

You can subscribe for free here: Send Me Creative Startup Financing Mini Course Right Now!

You will need to confirm your subscription by clicking

a link in the confirmation email.

No thanks! No time to waste, just let me have the creative financing manual for startups!

Startup Capital: How it's Really Raised

Startup Financing: How it Really Works

Let's look at the typical stages in a successful company's financings. We'll start with the last and finish with the first. Although there are rare exceptions to this sequence, in most cases it looks like this:

-The IPO
This is the big pay-off at the end of years of hard work. It means liquid stock selling at, hopefully, a high P/E multiple. (The second best alternative is to be acquired by a large company such as a member of the Fortune 1000.)

-Venture Capital C-Round
The IPO is now in sight and the C-round is used to "fatten the pig" as much as possible in addition to preparing the company for it. Often this preparation includes replacing management with C-level officers who are known to and respected by Wall Street.

-Venture Capital B-Round
Wall Street is starting to take notice of the company. Therefore, the VCs want to maximize its forward momentum.

-Venture Capital A-Round
VCs step in when the business looks like it has potential for an IPO or acquisition a few years down the road.

-Angel Round
Angels come in with money when you have started selling. They jump aboard because you now have tangible proof of concept. You're finally walking your talk. It's no longer all just hot air coming from the founder. Be honest, talk is cheap.

-Seed Round
At this stage you have no more than an idea. You are going to build the next Facebook or Google or Apple...only it will take a year or two of work before there is something that can be sold. Or maybe it's a dull little business which excites only you?

So, who comes in at this stage if you should be lucky enough to attract any money? The answer is the "3Fs", otherwise known as Family, Friends, and Fools. Yes, this means your parents and rich frat buddies from your days at Harvard or Yale. What's that? Your family is not wealthy and you didn't attend an Ivy League college? In that case, you are going to have to finance your seed stage the most common way: with a day job.

Welcome to Planet Earth. That's how 99% of startups get through the seed stage.

I am providing this information because so many people post online requests for funding to cover 2 to 3 years of coding or R&D. Then when they are ignored, they get angry.

If you are realistic about what types of scenarios attract investors, you won't get angry. Instead you will work to create an opportunity that will be attractive to investors at every stage.

If you think that you are going to attract money to cover your living expenses and provide a bit of fun money while you code or do R&D for 2 or 3 years, you are in for nothing but frustration.

Startup Grants & Other Free Money!

Do you want to know the fastest way to blow your credibility right out the door with serious business people? Bring up the fact that you are looking for a "startup grant" for your new business.  That's all you have to do. You might as well tell them that your financing strategy is based on first finding the pot of gold at the end of the rainbow.

Never mention "startup grants".

There's an illuminating discussion on startup grants here.