September 3, 2008

Create it, then Raise it

As a funding consultant I often see a harmful trend among aspiring entrepreneurs, namely; the desire to raise money for their business without even attempting to create their business.  Big Problem

I would like to offer a path to would be entrepreneurs that though seemingly difficult will actually make their trek to business success much easier than the alternative.

1.  As all businesses provide either products or services, make sure that product or service exists before you attempt to raise money.  This is especially applicable in the case of software or immaterial technologies.  If you do some research you will find that the majority of companies that are at the top of this industry, had development complete and at least several thousand customers before they raised money.  You should do the same.

2.  One of the primary reasons for going into business is to create monetary value.  If this is truly the case then it is probably a good idea to do some of this before you go looking for other peoples money.  Granted this may take time and a lot of sweat and tears, but it usually provides a better living than soliciting funds for ideas.

3.  With a product and some revenue you are probably in a good position to raise money.  At this point you probably also have a few years of experience under your belt.  This may surprise you coming from a person that makes a living trying to help people secure equity funding, but at this point your best bet if you are looking to grow your business is to acquire some debt.  Why, you may ask.  Answer, because why would you want to give up ownership in your business if you don’t have to.

4.  Here comes the part you have all been waiting for.  Sure, in some cases, about 10% to be more precise, entrepreneurs will want and need to raise some equity funds.  When this is the case make sure you do your homework.  You will want a friend and advisor not just a money hungry partner.  If you do it right, you could be the next Google.  Just remember that it’s not for everyone so keep it real.

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