How to Raise “Smart” Capital

Having raised million of dollars in capital over my career from angel investors and institutional investors (venture capital & private equity), I feel I have some words of wisdom I can offer those entrepreneurs who are seeking capital.  The first step is determining the makeup of your investor as an angel investor is much different than an institutional investor.

In my experience, Angel investors are lured in by the “cool” or “wow” factor, whereas an institutional investor likes the “cool” factor but wants to understand it in the context of a business case. This will be a good topic for a later blog, so look for that as a future post.

Many entrepreneurs and companies make the mistake of just raising capital, but by Changing Your Lens, it becomes clear it is not “smart” capital.  For example,  I was brought in to help a company replace an existing $5M dollar investment from a billion dollar high profile institutional investor who truly understood very little about the business. In addition, the investor required a 32 tab spreadsheet to be completed each month detailing all the numbers related to the business, which consumed a lot of resources from the company where they could have been spent more productively.

When looking for an investor, the main thing to look for is their expertise and track record in your industry segment.  Does the investor have other portfolio companies in your market, and how successful are/were they?  Ask to speak to their CEO to better understand their experience with the investor, and how much assistance the investor has provided outside of their checkbook. Many investors have never been business operators so they try to run your business by critically examining every dollar spent or received.  This is not the investor that you want.  Businesses all have idiosyncrasies, and the investor also has to evaluate the business subjectively.

In addition, you want an investor who understands your business so they can connect you to similar businesses within their network.  It is not uncommon for an investor to make an introduction and the two complementary companies form a strategic alliance. This alliance then can become a viable target for an M/A transaction in the future.

If you need help raising “smart” capital, please reach out to me.