Topic of the Week Other People's Money... What Does It Take to Raise Money for a Business
Raising Cash for a New Venture:
• DO get an A+ team.
• DO find a large, fast growing, under-served market.
• DO have reasonable financing.
• DON'T be mercenaries.
Your Rant: What do investors really look for in a business before they invest?
If the mantra for retail is "location, location, location," the mantra for someone starting a business would be "cash, cash, cash." Cash talks, and BS walks, as the saying goes. Which reminds me of a gambling phrase, splitting a pair. In Blackjack that's when you get two of the same numbered cards and you can turn one hand into two. For every gambler who has dug him or her self out of a hole with that technique, unfortunately, there are many more who just sink in deeper. Take Ken Zangara who racked up a $250,000 gambling debt trying to save Zangara Dodge, his New Mexico auto dealership.
The key to launching a successful venture it to avoid the Zangara strategy as much as possible. Take the gambling out of the equation and you'll increase the odds of success. That's where Venture Capital comes in, they can provide cash, but not for long odds. Check out the three Do's and one Don't below. For more, check out FastCompany.com for a conversation with Beth Seidenberg.
DO get an A+ team. Great leadership is needed to survive the ups and downs (often mostly downs) that are the inevitable result of starting a new business. Have the principle players been tested, do they quickly adapt to changing market conditions, are they willing to put their heart and soul into the business and are they really committed to doing what it takes?
DO find a large, fast growing, under-served market. It's possible to make money serving a small, slow growing and over-served market. But not with a lot of investors interested in throwing piles of money at it. Investors want to see a bigger payday if they're going to contribute their cash to the venture. This doesn't mean that the venture should be all things to all people, but simply that it should have in its sights an audience that can be profitably served.
DO have reasonable financing. A Venture Capitalist once told me that entrepreneurs always underestimate the cash that it will take to launch a business. Always. Because entrepreneurs are classically half-full kind of people, they tend to look on the brighter side. But cash is the grease that makes everything possible at work. So rather than cutting down your cash needs to make the business look easier to launch, you're better off adding extra cash to deal with unexpected circumstances.
DON'T be mercenaries. I've talked to people launching a business who were true missionaries and I've talked to many who are mercenaries. One simple way to tell the difference is how long it takes to hear the phrase "exit strategy." That's usually how they'll sell the business so they can cash out. Many businesses have been successfully launched by mercenaries, but I'd take a missionary every time.
Venture Capitalists don't Zangara with their money. Use these tips to make your business less of a gamble.
About the Author: Bob Rosner is a best-selling author and award-winning journalist. For free job and work advice, check out the award-winning workplace911.com. If you have a question for Bob, contact him via [email protected].com.