How to raise money

Most business owners understand their product but lack expertise in raising money through debt or equity. Obtaining proper capitalization is critical to growth and the long-term success of your company.
There are basically two ways of increasing your availability to funds—equity and debt. The advantage of raising money through equity is that you don’t have to pay it back. It is infusion of funds—most likely large amounts of funds—that immediately provides cash for your use. The obvious downside is that you give up some portion of your ownership. The first place to look for quick equity is to friends, family (and fools). The owner is the best salesman and representative of the company and they often develop a “deck” to assist them in this venture. A deck is merely a power point slide show that the owner can use in presentations that they are making. For this purpose they are often very good but don’t be fooled—these “investors” are not buying into your company because of your dog and pony show—they are actually “buying” you. They know you, they believe that you can be successful and are willing to invest because of that belief. It certainly helps if you can have other collateral materials to support your cause but chances are you are the reason for their investment. To move to capital markets to raise real money you need the use of a professional investment banking firm that can take your compelling story to another level and attract professional investment rather than emotional investment.
Debt is the second way to raise cash. There is good debt and there is bad debt. Good debt is matching long term needs with long term payments and vice versa. Good debt is a mortgage on your house—bad debt is mortgaging your house to pay off your credit cards. Debt can be raised from either commercial banks or a secondary market. If possible banks are by far the best option. Banks have the best interest rates and create advantageous long term relationships. Unfortunately banks are regulated by the federal reserve and if you do not meet their required ratios or are in an undesireable industry you simply will not be their customer. They may never say no. Instead they may just constantly ask for more information until you give up. Regardless, you are not going to get your money. Secondary markets are in many ways the wild, wild west. Many brokers lack the expertise to get your deal done. The litmus test should be in the information that they require and in how they use those materials in compiling the package that they use to present your compelling story to market. Lacking a professional package you will not receive serious consideration from credible lenders. As a minimum the package needs to include significant financial information; third-party validation of the business plan; market and competitor analysis; demonstrable evidence of management team and operational competency; financial projections; corporate regulatory compliance; and analysis of off-balance sheet assets. Thien this must be packaged in a professional format acceptable to the professional readers. Often times good deals are not financed simply because they didn’t make the investment do the work that is needed to properly present them to market so be wary of brokers who do not speak this language.

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