Raising capital to grow your business is a challenge – for just about everyone. While small business loans are one route to take, some growing companies have business models and present opportunities that would appeal to outside investors, such as venture capitalists, angel investors, private equity or family offices.
Florida SBDC at FIU consultants help those who are investment worthy get investment ready, helping with necessary documents ready and providing guidance on how and where to pitch, says Ricardo Weisz, an expert in startup ventures and venture funding, and a consultant with the Florida SBDC at FIU, the small business development center within the FIU College of Business.
“We provide guidance on putting together an investor deck, financial projections and an executive summary, as well as where to seek funding. For those that do, I would help them with the negotiation process and the documentation process,” says Weisz.
Sometimes, founders of these companies find help from non-traditional private investors they met through networking. But Weisz cautions that many times these investors don’t have the experience or knowledge. That creates conflicts with the founders. “They might have unrealistic expectations, and that also may come from the founders who paint the blue sky.”
Weisz gives founders guidance on the type of conversations they should be having and on setting expectations.
It all comes down to the right product, the right attitude and right partnership, Weisz says. “You really want to have your investors as your allies and on your board.”
It’s important to keep your investors informed by day 1. Provide them with financial updates on a regular basis and be open to their advice, he says. “When that happens it creates a little bit of magic. When you need extra money they may be the first to write the check.”
One of the companies Weisz works with is on a high-growth path and needed outside funding to grow. The tech company’s founder cultivated its group of investors the right way, Weisz says, and keeps them abreast of developments and issues. That’s paid off. Those investors provided a second round of financing to fund the company’s continued growth.
On the other hand, another business received an early round of financing, but had set no expectations, took longer than expected to get off the ground and may have overbuilt in investors’ mind it really needed. The investors are ready to pull the plug, Weisz said.
Cultivating those relationships with investors – and potential investors — takes time.
What can concern a potential investor, according to Weisz?
- Weak differentiation. It is about looking for that niche that will allow you to stand out. Don’t throw everything at the wall to see what sticks. Instead understand what your strengths are and leverage those strengths.
- Business that are too slow getting products or services to market. Particularly with tech companies, focus on getting that app on the market and acquiring those first clients. Often times it isn’t the right team or they lack a good go-to-market strategy.
- Founders lacking in their knowledge of distribution and sales. “They lack expertise and they don’t seek it out and they don’t spend their time learning,” Weisz says. “At the end of the day, access to capital is often the impediment to rapid growth.”
The way out, Weisz says, is to focus on getting sales as quickly as possible. That pleases investors – and the bottom line.
Read more: For tech companies interested in pursuing venture capital, Weisz suggests reading the blogs of some of the country’s most prominent investors and startup accelerators. There include the blogs of Pear.vc, 500.co, Ycombinator.com, Gust.com and any industry specific accelerator program.
Please send GrowBiz topic suggestions and feedback to sbdc@fiu.edu.