Raising money and proof of concept.

Proof of coneptPeople with great ideas love and value those ideas.  People with money very rarely value those ideas.  This is a disconnect that frustrates a lot of business owners.  But if you do it right, this does not have to be an impediment to getting the cash you need.

Here is a surprising statement:  bankers don’t really care about who the business owner is.  I have never seen a banker say “I’m not going to lend money because the business owner looks a little shady.”  All investors, including bankers say they lend to the person first and the project second.  I don’t buy it and the many deals I’ve been a part of do not support that statement.

The overriding concern is always confidence.  Does the lender/investor believe he will get his money back?  Bankers certainly want collateral but it’s more than that.  How do they know the project or business will be successful?

Here’s a question for you:  How much confidence do you have that Tiger Woods would beat you at a round of golf – or how confident are you that Serena Williams would beat you in a tennis match?  Very confident, right?  Where does this confidence come from?  They have done it before, they have proven that they can do it.  In the same way a banker or investor wants to know you’ve done it before.

Proof of concept is the single most important criteria to getting the money you are trying to raise.  Having done it before is the best proof.  That doesn’t mean that there aren’t other criteria because there are.  You do want to be friendly, you do want to have projections, financial statements and a marketing plan.  All these things are necessary but not sufficient.  You have to prove the investor will get his money back.

Here is your action plan when trying to raise money and it is a new project, you don’t have a lot of collateral and the investor/banker is new to you:

  • Do not overwhelm them with pages in a document. The main body of the presentation should be a couple of pages at most.  If you want to include charts, pictures and other collateral, do that in an appendix.
  • Present in a way that shows you’ve successfully done this before. It does not have to be exactly the same but the concepts have to be similar.  Give evidence that your past successes will translate to success in this venture.
  • Identify all the potential objections the lender may throw at you. Provide evidence that you will overcome these objections.  And don’t argue – that will only get you a no.
  • Provide documentation to support every assumption you make. If you expect sales to be $3 million the first year, you have to provide evidence that you can do this.  And you have to provide evidence that you will be able to fill these sales.

I have seen both too much excitement and/or too much arrogance derail many money raising activities.  Please temper both of these emotions and get to the facts, that’s what bankers and investors want.

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