When you’re looking to start a new business venture, capital is perhaps one of the most important things you need to establish. Without enough capital, you won’t be able to implement the various business models you have created. Hence, any entrepreneur should first look towards capital generation before going ahead with any aspect of their venture. With this in mind, here are a few helpful tips regarding raising founder capital.
Getting founder capital is a lot easier said than done. Many institutional investors, as well as high net worth individuals, are extremely cautious about the investments that they make. Hence, any entrepreneur looking to raise capital will have to put forth a very convincing case to these investors regarding why they should invest capital in their venture. Ultimately, a number of different strategies can be utilized to generate as much starting capital as possible.
Reputation within the industry is one of the best ways to convince investors to provide you with founding capital. Having a strong track record which is bolstered by an excellent reputation will convince many investors to trust you with their capital. If you’re an entrepreneur seeking to start a venture in a market which you have no prior experience within, you will face a very steep curve in persuading investors to provide you with capital. Hence, the easiest way to persuade investors is to simply present your excellent history and reputation.
Many times, if you don’t have a strong and established history within a particular market, you will have to look at other strategies when trying to raise founder capital. As a general rule of thumb, the less experience you have within an industry, the more equity you will have to offer investors. Investors will be very unlikely to invest capital into a high-risk investment if there are no provisions for them to gain significant equity in the business. Hence, entrepreneurs that are looking to start a venture in an industry which they have no prior experience within will likely have to offer generous equity deals to any potential investors.
Entrepreneurs should also reach out extensively to their underlying network of business connections and associates. Associates and connections who aren’t necessarily in the same industry as you, however understand that you are trustworthy and are likely to succeed in business, may be willing to invest capital into your venture. Hence, it never hurts to reach out to as many connections as possible, outlining your proposal. It will be likely that you won’t get any leads from the majority of those that you contact, however, the potential that one person out of the many that you have contacted will be interested is highly likely.
Overall, raising founder capital is a very difficult process. Entrepreneurs that don’t have a stellar reputation or experience will be facing an uphill battle in convincing institutional and individual investors of the success of their venture. Thus, putting into effect the advice that has been presented, entrepreneurs will be in a better position to understand what they need to do to raise as much capital as possible.
