The WHEN part of HOW, WHY and WHEN.

Let’s throw the "Start-Up Capital" concept out the window for a second (or forever.....).

When venture capitalists talk of start-ups, they are not referring to an idea that is about to start making money. They are more concerned with a fledgling $5-$20 million turnover business which they can “start-up” and grow to $100m dollars plus.

VCs are not interested in projects that don’t make money now. In fact, most of these funds are mandated to only invest in profit-making ventures they can 10x using their skills and contacts (more than money).

The key to raising money is not about how much you need. It’s about when you need it.

Let me explain…...

At the beginning of the ideation process all you have is an idea. It might be a good one, but it’s still just an idea and in economic terms it has no value. To get this from an idea to a concept and prove that concept, will require some capital.

The only people likely to lend you money to fund this at the idea stage, are friends and family. That’s because the risk level is way too high for any calculation and the returns are not possible to estimate accurately. These people are not betting on the project - their betting on you. (sadly, many inventors get carried away with their genius and tap their home equity or superannuation at this point and then compound the problem with adding patent expenses to the mix.)

Wherever you source this early (seed) capital from, it will become important later on because venture capitalists will look at this to determine how financially committed you are to your project and how much skin in the game you have.

If you borrow or use other people’s money from ideation through to scaling up, the venture capitalists will see that you have no commitment to the project - in as much as you will suffer no financial hardship if this project doesn’t work. Let’s not focus on the venture capital, as more than 98% of projects will never get to this point.

The hardest but most necessary capital event is the cornerstone investment.

There needs to be a number of milestones met before you can pitch a genuine business proposition around your project, to a cornerstone investor. These include an independent market validation, a genuine proof of concept and a structured transition audit, which proves that your project is clear of R&D and ready to become commercial.

For those of you who’ve invested heavily in patents up to this point, you may be thinking “this guy has forgotten product protection” but in fact patenting and other protection is a matter of timing, if you want to prevent your project from sending you broke.

The cornerstone investor capital is usually between $500,000 and $1.5 million and doesn’t come from large venture capital firms. For those of you that are pitching to the VC investors to get your project concept into a production, this may help you to understand why they never invested but instead gave you lots of words of encouragement.

There are certain features you need to have in the cornerstone investor that need to be present, in order to have this party jump into your project. Doubling their investment is not one of them. The return on investment is important but it is not the most important reason why they would jump into your project. In fact the most important reason has nothing to do with cash.

To secure this cornerstone investment capital you need to understand how to profile prospective investors at a cornerstone investor level, because these guys become commercial partners very quickly. Understanding exactly who needs to invest in your project will reduce your Pitchfest activities from 10 a week down to one a year - and that one is most likely to yield the result you want.

Would you like to know more about how to profile the right investor at the precommercialisation point? Get yourself a nice warm cup of whatever you drink, and click below to view the short video on the 3Ps of capital raising, which is specifically targeting the cornerstone investor stage of pre-commercialisation.

Watch this 5-min Cornerstone Investor profiling lesson here https://vimeo.com/190352157. This is one of 6 short lessons on capital-raising, as part of the 34-module commercialisation course that inventors complete, in order to own the process for this and future projects.

If you would like more information on commercialization or you are feeling overwhelmed by the task ahead of you, go to https://www.inventorsmasterclass.com/free and book in for my next free on-line seminar. I cover this topic and others, in more detail.

There are lots of people out there who promise to raise capital and want to keep the process a great big secret. They want to charge you money for this, including upfront fees (regardless of achievement) and don’t want you to learn the process for the future. I want to make it very clear to you that if there is one skill that you absolutely must master in this commercialization process, it is the method of qualifying and pitching to the right investors to raise the required funding to keep your project moving.

If you are an inventor, you most likely have not invented just one project. The skill of raising capital is something that you will inevitably need to master, if you going to be successful as an inventor. The innovation process is less about the ingenuity of what you have and more about how you can progress the development process, which always needs money. Nobody would doubt that Tesla’s AC electrical process had more merit than (his old boss) Edison’s DC current. However, Edison focused on the business model and the target market and won the day.

Don’t put this critical task in other people’s hands. Take control of what you need to, in order to control your destiny and to control the outcomes for your project in the future. Don’t try to partner up with people who promise you money or access to money. Own this process and experience the freedom of not being accountable to intermediaries for the rest of your innovation career.

Good luck with your project,

Daniel