Busting the Myths about Raising Money – Forget Everything You Think You Know
The amount of misinformation and confusion out thereabout raising capital from investors is staggering! If experts like lawyers and finance specialists are so often wrong on this topic, imagine how hard it is for the layperson entrepreneur to get the full and correct picture.
Entrepreneurs are constantly making huge mistakes with their capital raising efforts that can cost them time, money, and even their business. Even worse, they may not even consider raising capital because their understanding of the capital raising process makes them think that it is not an option for them.
Let’s bust some myths about what it means to raise money from investors. Here is some of the conventional wisdom that you’ve probably heard or read on the internet:
- Investors consist of very wealthy individuals and organizations and they are all looking for basically the same thing and you need to tailor your business to fit what they are looking for.
- You can only raise money from investors if you are going to grow your business very fast and have a “liquidity event” in which the investors make 30-50 times their initial investment.
- Even though you have to give up a lot of ownership and control when you raise money, the good thing about it is that your investors have a lot of experience and contacts in your industry so they can advise you and make great connections for you.
While these statements are true for certain types of investors and investments, they are not universally true. In fact, in my experience(having helped my clients raise millions of dollars and having raised several hundred thousand for my own company), the following statements are true:
- The universe of investors is far larger than angels and venture capitalists and each investor is unique.
- There are many ways for investors to get healthy returns that do not require the company to be sold.
- The “smart money” that supposedly comes from professional investors (i.e. all that expertise that they supposedly have) is questionable. Some professional investors can be a huge asset to the companies they invest in, while others will take the company in the completely wrong direction. The founders often know a lot more about the right direction to take their business than an outside investor does.
To learn more, watch my on-demand webinar and avoid ‘The Bootstrap Trap’.
A “liquidity event” means something that happens that allows your investors to cash out their investment – the two main liquidity events are a sale of the company and an initial public offering (IPO).