Seeking Investment – Raising Capital in a Dowturn

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BY F3FUNDIT

You’ve done your leg work, you’re business plan’s been refined about ten times, but it seems like at least a hundred, and you’ve spent every weekend working on it. It’s time to go out and get some funding. Great.

But there’s a rub, a business plan is just a couple of pieces of paper, it’s a guideline for you more than anything else, a place where you keep your ideas, collect your thoughts and reference your vision, mission, and business model. It’s great to use when building slides for presentations, and to send the executive summary to bplan competitions, seed funds, and angels, but the sad truth is, that if you don’t have even a semi functional product, you won’t make much headway.

So what do you do? Well, you can ask your 3F’s for money (Friends, Family and Fools), at least enough to develop your product so it’s ready for testing. Why?

Well in this climate, this recessive climate, investors are keen to keep their money in their pockets, long gone are the days of the late 90’s when a few million was given out without so much as the blink of an eye.

But how do you get people to open up their pockets for you? There’s a few ways.

1. If you’re developing a tech platform, be in internet, mobile, or other, look at your burn rate. If you can’t get out of the red within 3-6 months, the odds are stacked fairly high against you. Your idea may be profitable in a year or two, but there’s just no money out there right now to support that. In today’s climate you have to be out of the red quickly.

2. Pool micro Angels. What’s a micro angel you ask? People who are willing to invest €, £, $10-40k. They like to invest and enjoy the risk but don’t have the capital of an angel who can throw 100-300k at your company. Pool a few of these and you’ve got an investment at the capital level of an Angel.

With that being said, remember, you don’t need a check cut out for the whole lump sum in one go. Let the micro angels know when you’ll need the money and at what milestones. Do you need 5k now, and then another 3k in a month, and then 10k three months from then? Small sums are much easier for people to manage than is one lump sum.

As you’re developing your idea, be sure to keep the micro Angels informed of progress. For them the investment means a lot and they’re emotionally betting more on you than a larger Angel network.

3. Once you’ve got a functional prototype, you’re ready for the Angels, now’s the time to network and bring what you’ve worked on to them, you’re ready for the capital injection of 100-300k. Here’s however where you and your Micro Angel need to make a decision, do they stay on with their small % equity stake in your company, or do they convert it into the recently sourced cash?

If possible, use the cash for operational activities, cash at this point in your company’s life is the most important thing in the world, no cash, no progress, and bets are you might not be able to acquire a bank loan due to the stringent climate. All the same, the Angel in all likelihood will not want you to using their money to pay back your rich uncle, so try and keep the micro angels on board until you’re generating healthy cash flows, and / or are ready for Series A funding.

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