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Thursday, February 24, 2011

How to Leverage Your Network for Raising Capital

from Christopher Grey





Many first-time entrepreneurs become discouraged when they realize how challenging it can be to raise capital for their business. Closing a round can often take months, and that’s if you’re lucky and can convince people to invest in your business. But don’t give up. When the going gets tough, break open your Rolodex and get to work.

1) Ask people you know for help. This seems obvious, but many people are too afraid or too polite to do this. If you believe in what youíre doing and think youíll be successful at it, youíre offering people a good opportunity. So you have to nothing to fear or to be embarrassed about when asking people you know for money to invest in your business. In fact, if you donít feel comfortable asking your friends, relatives, former colleagues, neighbors and anyone else you know to invest in your business that may be a sign you donít have what it takes to be an entrepreneur. A successful entrepreneur has no fear of asking people for money. That doesnít mean you should be rude, careless, or in any way misrepresent the opportunity, but you should be confident enough in what youíre doing to feel proud and excited to offer people you know the chance to participate in it.

2) Donít give up easily. This should also seem obvious, but many people are way too easily discouraged and give up if they donít quickly succeed at raising the amount of capital that they think they need for their business. Legendary entrepreneur and current owner of the Dallas Mavericks Mark Cuban once said that most businesses can be initially launched with a lot of sweat equity and a mere $10,000. Pretty much anyone, even with a creative use of credit card debt, can put that together. After that, itís a matter of hard work and building one step at a time. If you canít raise as much money as you want right away, donít give. Take what you can get and start doing what you can with that money, your own labor, and help from friends, family, and others who believe in what youíre doing even if they donít have money to invest right away. Deliver some results and let your initial investors see you in action; this might inspire them to contribute more capital or bring some of their contacts in as investors.

3) Leverage your extended network for help. To raise capital you’ll likely need to go beyond the people you know well. This means asking people in your extended network to reach out to their close contacts. These second degree network connections can lead to some surprisingly powerful results that you may never get just focusing on the people in your inner circle of contacts.

4) Close doesn’t count. Raising capital for growing your business is not like throwing grenades or playing horseshoes. Sometimes entrepreneurs are satisfied to just get prospective investors or other people who could help grow their business to provide moral support and advice. While advice can often be helpful, it doesn’t pay the bills. Be persistent and resilient until you get a firm answer. Getting a flat rejection is often better than not getting a response since at least you’ll know where you stand. (If getting a door slammed in your face bothers you, you may not have what it takes to be a successful entrepreneur.)

Christopher Grey is CFO and Co-Founder of CapLinked. Chris was a senior executive and managing partner in private equity, finance, and banking for 15 years. He founded two companies, Crestridge Investments, a private equity firm that made debt and equity investments in micro cap and middle market companies, and Third Wave Partners, which made debt and equity investments in distressed situations, and was managing director of Emigrant Bank, the largest privately owned bank in the country. Chris is a founder of Stanford Professionals in Real Estate and a columnist for TheStreet.com. A version of this was originally posted on CapLinked's blog.


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