People that are looking to be entrepreneurs, or even existing business owners, have some common misconceptions around raising capital. Often time they are on the opposite ends of the spectrum that have little to do with business acumen or the potential to be successful. It has a lot to do with your own networks, your personal drive to really get out there and learn or experience in being inducted into the secret dark world of finance. To help new startups, here are a few points to think about when you need to speak with investors when raising capital.
(1) Wealthy investors MUST be more generous
This is a funny misconception- people think that because people are ridiculously wealthy, they won’t think twice about cutting a million dollar check. Most wealthy investors (particularly the self-made types) are fierce and sharp and they will ask difficult questions before parting with their hard earned money. What is different are the actual amounts that wealthy investors are able to invest versus other less affluent investors. Now we are talking about the difference between someone who can invest $10,000 vs. $100,000. But more doesn’t mean easy, don’t forget that.
(2) Raising capital is the last thing to worry about
It’s most definitely true that spunk and ambition can take a business a really long way. I’ve seen small businesses and even startups thrive on the money they were able to generate from sales. It’s a great outcome, but pretty rare. Capital is often injected to create competitive edge and to scale. That’s different then saying capital investments are needed to make money. Many businesses are able to make money, but capital is required to expand into other markets, acquire talent while simultaneously keeping the edge sharp. Raising capital shouldn’t be a topic that you’re always thinking about, but definitely something that any good business owner should be cognizant of.
(3) I need money to make money
Every time I hear new entrepreneurs say “I need money to make money”, alarm bells go off. This is a common misconception with new entrepreneurs. There are so many ways to get a business off the ground without capital. Granted this method is not without its difficulties, but there are whole different sets of considerations that need to be taken into account when taking an injection of external capital. Remember the MVP from the lean startup? Try it out.
(4) Having raised capital is a sign of success
More often than not, a startup that’s able to successfully secure big funding is considered to have reached a milestone that indicates success. Indeed, raising capital has its merits, but it’s more of indicator that the journey has just now begun rather than having reached any sort of metric of success. Delivering a return on capital is the tricky part.
Raising capital is indeed the less sexy part of owning a business (until you secure a MEGA ROUND), but it’s something that all business owners, both startups and small businesses, need to be cognizant of. It creates a basis for execution and serves as the blood that keeps a business alive.
Are there any other misconceptions that were not mentioned? Share with us and help continue the conversation by tweeting us @RoCSpeaks or by leaving a comment.