Raising Money for a New Venture

There are many things that quite frankly get the door closed or lead to the inevitable "string along".

Raising money really is an art form because you have to know more than the buzz words, typical paths, etc... but you have to know the little nuances such as "how do you value a company that has no tangible assets, very little revenues, but has growing traffic, a niche market and a business model that scales?"

How much should you ask for and how much should you be willing to give up? What introductions get meetings and what introductions lead to investments...

One of the most important things is gaining trust and confidence. Would anyone invest in a perfect stranger over a longtime friend or colleague who they've made money with or have seen make money for others?

At the end of the day venture investors are money managers. They have investors in their funds that require returns through responsible investing.

The truth of it is, most startups never get funding outside of friends, family and maybe a loan/line of credit.

The key is to build a business that is sustainable, not one that you want to get funded. If your business requires $1 million plus in funding you better be talking clean tech, bio tech or infrastructure. I think the days are gone or numbered where web-based product startups without a ton of traffic and meaningful revenues get funding over $250,000.

The Truth Hurts Less... When you hear it earlier...

No one wants to hear "your idea is terrible", "that's not a business it's a hobby", "no one will ever invest in you, at least not now".

These are harsh things to hear and even harder to say. Investors and adviser's don't want to crush the dreams and passion of future entrepreneurs, however real entrepreneurs won't get discouraged by this honesty, they will be driven by it. If you don't believe in your vision enough to take criticism and keep moving you don't have the drive to make it successful anyway. I won't apologize for this statement as it is true. All businesses go through tough times and it is easy for the most confident and driven of individuals to get discouraged. If you can't push back on adversity you won't succeed.

Too often we want to encourage entrepreneurs and young thinkers to make them feel like they are smart and their idea is great. I believe in positive reinforcement for what is done right I also believe in honest harsh criticism for what is done wrong.

There are a lot of great ideas that don't make good businesses. I can't tell you how many times I've heard young entrepreneurs say "they loved it". My response is "will they pay for it?" We have all heard a friend talk about a concept that sounds amazing, like it can't fail... but that's because we haven't asked the tough questions. We bought into the passion and see that the concept does make sense but never stop to ask "how, how much, how long, how many, who, who is..."

• How: How are you going to execute?
• How Much: How much will it cost to execute?
• How Long: How long before you can start selling?
• How Many: How many customers do you need to be profitable?
• Who: Is your competition?
• Who Is: Who is working with you?

What is the point of all these questions? To determine if you have a plan of action for your idea and if it is a legitimate business or just a cool idea. One of the biggest mistakes entrepreneurs make is not surrounding themselves by people who know more, question often and don't believe the hype.

Hire someone you would want to work for, surround yourself with people who will challenge you, don't get discouraged... listen and learn.

Your idea may be a terrible business, but if you learn how to conduct due diligence on your own ideas you'll save yourself time and energy... and when you come up with that idea that does make a great business you'll be ready!

Where can we begin today?

We hear so much about all of the renewable energy and infrastructure heavy energy solutions such as solar, wind and natural gas. The question I have to ask is "are these the right first steps?" I want to begin with a few fundamental business questions.

1. How much will it cost?
2. How long will it take to implement?
3. What's the payback period?
4. Where does the proposed solution fit into the "investment-return" hierarchy?

When I do this what I keep coming back to is a strategy that calls for conservation first, alternative sources second. I will get to what I mean by conservation shortly... because I don't mean turning off your lights. The reason I believe conservation first is the right strategy is, assuming there is still a capital investment, the investment is lower and the payback period is much faster. In addition, reducing the amount of energy needed;

1. Reduces the costs for the alternative, infrastructure heavy sources because there is a decrease in energy demand so fewer solar farms, wind farms or shales need to be developed or mined
2. Makes the potential for increased energy costs more palatable to consumers and business owners (save 30% today, pay 10% more tomorrow)... a net savings of 20% is easier to swallow then an increase or a new tax
3. Puts additional money back into the economy today through realized energy savings

Now, what I mean by conservation is true conservation strategies such as insulation or automated central air and hot water systems. While light bulbs and the numerous other smaller solutions are valuable, I just believe that it is not enough of a motivation for mass adoption "$5 light bulb, $.50 light bulb, how much will I save with the $5 light bulb?".

The best example I can give in a natural progression is for the energy and solar consultants out there. The average homeowner can't afford a $20,000 + installation regardless of the tax breaks. However, what if you could offer a simple, $3,000 solution that delivers energy savings of $1,000 per year?

We are so focused on what we all want to sell, we aren't thinking of what makes the most sense to solve the problem. We know the objectives, reduce energy usage and find alternative sources.