Keys to Raising Capital: #1 Relationships
Raising capital is one of the most difficult, complex, frustrating and time-consuming challenges facing founders in any industry. It is also one of the most critical and nuanced functions of a high performing leadership team. There is no 1 guaranteed way to succeed in soliciting investment but after a decade plus of doing private transactions, it has become clear that success is in part a result of a cohesive strategy and a sustained multifaceted approach which can be summarized in the following key seven principles, or the “The Five R’s of Raising Capital”:
- Relationships
- Relevance
- Resilience
- Right Ask (offering/structure)
- Returns
Part 1: Relationships
People have always been at the core of every business and industry. The same is true with raising capital. Do you have an unfair advantage or personal differentiation with the key investors who will back you and your venture? Investing in private companies all comes down to the people and the ideal situation would be that you have a group of investors with whom you are a known person with a track record of success. Although this is one of these things that takes time to develop, we all have to start somewhere so expanding your network should be a constant activity and you should always be ready to ask anyone you meet if they are an investor or know an investor they can make an introduction to.
Cultivating these key relationships on a sustained basis will have a direct correlation to your success in raising capital. Building a relationship is not always about the “ask”, so seek authentic ways to deepen your relationships over time. As the saying goes, ask for money and you get advice, ask for advice and you get money. When an investor and an entrepreneur partner through an investment relationship, by its nature this is a long-term readership and will have many ups and downs, success and failures and difficult conversations along the way. As with any personal relationship, there must be a foundation that can endure.
Spend time getting to know each other, and getting to know each other’s relationships. It is more common than not that you will have a group of investors that financing your company and if you have the right investor relations many of the investors who back you will advocate their relationships and networks to support you also.
The identification of and engagement with the key relationships that will make your business a success and the most successful people in business spend a lot of time surrounding themselves with the right people and adding mutual value.