Who better to get advice from on how to raise money in this climate than an entrepreneur who’s actually doing it? Jonathan Weber, an entrepreneur who’s currently raising money to grow his business NewWest.net, wrote a recent article for Reuters on securing cash and – caveat emptor – it’s a little scary. Regardless, Weber tells it like it is – beginning with the truth about venture capital:
“Even though there are many hundreds of venture-capital firms with many billions of dollars at their disposal, the types of companies that interest VCs represent a tiny minority of all new businesses, and they have to fit a few very specific criteria,” says Weber. “Most importantly, there has to be the promise of a huge payoff in the event of success—at least 10 times the initial investment (which itself generally has to be north of $1 million for it to be worth a VC’s trouble) in a five-to-seven-year time frame.”
The good news is that Weber – someone who’s been pounding the pavement this year with his business plan – says that’s not reason to despair. There are other, good options, even when it seems like whole world is short on cash:
“Former colleagues or mentors can often be excellent prospects; good angels are usually invested in you as much as your business plan. I’ve also found that angels are very sensitive to who else is a part of the deal, so if you can get one person with a good reputation to sign on, it will be a much easier road from there. A pretty common level of commitment for an experienced angel investor is $25,000 to $50,000, though some angels will do as much as several hundred thousand.”
And he provides some good insight into what it takes to get a bank loan, too:
“If you’re raising money to buy hard assets, conventional business loans can be a good way to go. Banks might be reluctant to lend to small businesses, but it’s amazing how fast that reluctance goes away if there is collateral. Equipment purchases, and things like liquor licenses, are often fairly easy to finance, though, of course, pay close attention to the terms.”
Finally he makes a point that we think too few entrepreneurs consider before launching into fundraising:
“Time spent soliciting money is time not spent building the business. If you definitely need the money, be as targeted as you can in your approach. It’s always easy to find people who want to kick the tires, but finding people to write checks is, almost by definition, one of the toughest things in business.”
Check out Weber’s entire Reuters piece here and then thank us in our brand new spankin’ comments section below.
