Let’s say you’re a budding entrepreneur and you have an idea that you “know” and believe in your heart-of-hearts is the next FaceBook, Twitter or Google. And you know that you don’t have enough funds to bring your idea to market. So you think “Ah ha, I’ll raise the funds. There’s billions of investor dollars out there and I read of projects being funded all the time.”

Great, that’s music to our ears and what this country is based on. But before you go rushing off to meet investors, please familiarize yourself with these facts:

1.Question: Why does an entrepreneur seek investment? Answer: To accelerate the growth of their business. It is important to understand this when raising capital, because that’s why an investor invests. So they will want to know what you’re going to spend their money on and how that will accelerate growth.

2.Investors only invest in scalable businesses. They’re not looking to invest in mom and pop business or business that are hard to scale up. For example consulting is difficult to scale up with any sort of speed.

3.You must invest money in your own project. If you have not invested money in your project, why would anyone else? I.e., if you’re not prepared to take the risk why should they?

4.Investors expect you to have skin in the game, which does not include lost income and sweat-equity, as these are expected from you. Investors want to know you have cash in the business too and that you’ll hurt as much, if not more than them if the business fails or you decide to take a job.

5.There are a million great money making ideas out there, but what investors want are great businesses to invest in, i.e., they don’t generally invest in ideas alone. So present a business, not just an idea.

6.All investors want a good exit strategy, i.e., they want their money to grow and grow big.

7.The earlier the investment money, the greater the risk so the greater the piece of the company you’ll have to be prepared to give up.

8.Investors are looking to do some good with their money, so they’re not going to bet on a losing horse. Even philanthropic investors want to invest in a viable business, i.e., they may not be motivated by an exit strategy, but they want their investment to do something positive, which it won’t if the business is no good.

9.If your idea is your “baby” and you don’t intend to sell it, don’t bother trying to raise capital. Investors are looking for a big exit strategy, which they won’t get if you’re not prepared to sell. Note: I know you’re thinking of Bill Gates and Microsoft, Google, Facebook et al, i.e., they didn’t sell. But the point is, they were prepared to and they were lucky that their big payout is an an annuity. So in other words, you need to be open and flexible with your exit strategy.

10.You need to be prepared to give up more equity than you keep. You won’t get investors if you intent to keep 90% of the business.

11.It’s better to own 10% of a success, than 90% of failure…trust us on this!

12.Do not approach an investor half cocked, i.e., unprepared. You generally just get one bite at the apple, so if you don’t present your best case, you’ll probably never get the investment.

13.Always remember, you are one of millions of entrepreneurs with a great idea looking for funding.

14.The best approach is to make sure your intro paragraph, presentations, executive summaries and business plans are clear, concise and to the point. Don’t pad with fluff or use boiler plate paragraphs from a purchased business plan. Investors are very busy people, they want to invest, so make it easy to find the good stuff.

15.Investors are in the game of risk. Which means they don’t really read business plans, i.e., they tend to flick through them looking for facts, pieces of information they need and prove that you’ve done your due diligence. So make it easy for them to find it.

16.The executive summary should be the first two (and I emphasize 2) pages of the business plan. If structured well, these two pages cam get you the investment you’re looking for.

17.When presenting to an investor, make sure you told them how the business will generate revenue and why you need the money. If they ask you these questions after you’re presentation, it might mean you’ve failed.

18.Even worse than above, they didn’t understand your business value proposition and have to ask you to explain again.

19.Investors invest in great teams. The idea needs to be compelling, but it doesn’t matter how compelling it is if the team is weak. A good team is smart, creative, experienced and has integrity.

20.Most successful businesses didn’t make their money on “plan A”, i.e., the first idea, they made it on Plan B or C.

21.Bank loans and government business loans are secured loans, i.e., you have to provide some sort of asset to get the loan, like property.

22.A Cach 22 with bank loans is that investors don’t like to see them on the books, i.e., they’re concerned their investment will be used to pay off the loan as opposed to growing the business. If you have a loan, provide some sort of assurance to the investor that you will not simply use their money to pay off the loan.

23.The likelihood of someone giving you money solely on the basis that you’re convinced you have a winning idea ain’t going to happen! Why? Why should it? Between you receiving the money to the success of a project is thwart with a million problems and the investor knows this. You need to provide more than an idea and you especially need to show that you can pull this off.

24.Angels used to only be high net-worth individuals like doctors, lawyers or people with inherited wealth. Angles have evolved into institutions, successful business people and super angels (group of angels).

25.Raising money is a full-time temporary job. You have to prepare, seek, reach and present. Preparation is very important as I’ve indicated above. Seeking investors takes time, they’re hard to find, e.g., there’s no investor club where they hang out. Then you have to approach them, schedule a meeting to present your idea then get yourself to the venue.

26.In relation to point no. 25, consider the fact that raising money means you’re probably not spending time on the business. So make sure you ask yourself whether you should be raising money now.

27.Make sure the investor is good match for your company. E.g., if the investor has only ever invested in say bio-tech, they’re probably not a good fit if you have a hi-tech project. So make sure you do your homework.

28.Don’t be afraid to ask the investor if she knows of another investor that might be interested in your project. Investors are usually very amiable and willing to help…as long as they feel your project and company is a worthy investment.

(as more facts come to mind we’ll keep adding to this list)

KENOVA Technologies is an early stage investor in technology companies that require application development

KENOVA Technologies blog