ContractRoom Co-Founder & CFO, Peter Thomson shares solid advice for anyone trying to raise start-up money from friends and family in his recent post in StartUp America's blog. Click here to read now, or continue reading below.
Having recently raised nearly $1,000,000 in an Angel Round for ContractRoom, a cloud-based, business-to-business (B2B), negotiation and contracting process automation software, I know first-hand how difficult it can be to ask friends and family for money. Here are a few suggestions that worked for our fundraising efforts:
1. Remember, you are presenting an opportunity. Asking for money from your close contacts is tough. But, imagine how upset they will be if you don't ask them, and your company becomes a huge success? I, for one, know that many of my personal contacts would be really upset if I hadn’t at least presented the opportunity.
2. They can always say "yes". A lot of times, people believe that when they ask someone for funding, the person they are talking to can simply say, "no". I look at it differently. I like to think that we are giving people the chance to say ‚"yes". If you don't ask, they will never have that opportunity.
3. Be prepared. It is really important to do your homework, understand your product or offering, know the market needs, know your competition, know your numbers, and practice your pitch. From business plan to investor deck (lots of resources give you guidance on these), having a solid, well-rehearsed presentation shows that you respect your potential audience's time and money.
4. Be professional. No, it's Not OK to give your investor presentation to your cousin while she's watching the latest episode of "The Good Wife". That's what you do when you hang out together. Make an appointment, meet in an office or quiet setting, and make your pitch, professionally.
5. Assume nothing. Don't assume that any of your personal contacts, friends or family, know anything about you; your work experience, your accomplishments, or your ambition. Sell them on all aspects of you and your management team as if they had never known you.
6. Ask for help. I once heard a professional fundraiser say, "Ask for money and you will get advice. Ask for advice and you will get money." Now, that's good advice!
7. Listen. When you make a pitch, listen to the feedback. The investor audience provides you with a fresh set of eyes and ears, and they may even make a suggestion to take your company to the next level.
8. They believe in you. Unlike investors who don't know you, your small network of family and friends know you first-hand and believe in you. That's half the battle in raising capital.
9. No investment? Get a referral. So you didn't get the order -- never leave empty-handed. Ask your contact for 5-10 people they will refer you to who could be potential investors. And, help hold them to it by providing phone call and email scripts for their outreach.
10. Follow up. Even though you might have gotten a "no" be sure to send your contacts updates on your progress and what you are doing - keep it to significant developments, or milestones, such as funding progress, product development, "Pilot" activity, new key hires, or your latest client engagements. You never know what might get them involved, and you definitely will not get them to buy in if you make your pitch in January and wait to talk to them again the following Thanksgiving over turkey dinner.
11. Over Communicate. So, you got the "yes". Great! Now what? Our investors participate in a quarterly call and I send them periodic milestone updates, regardless of their personal relationship with me or our founding team. You have a fiduciary responsibility to report good and bad news in a timely manner. Our investors are always fully informed.
12. Be surprised! While the bulk of our Angel funding came from a typical resource, our engaged Advisory Board members, and some of their personal contacts, investment can come from just about anyone. My 27 year-old nephew, who started an education software company, told his former high-school English teacher about his product. Soon, the former teacher became an Angel investor. Bottom line: Talk up your idea to anyone who will listen to you. You will be surprised.
Good luck, hang tough, be prepared, be smart, be surprised, be passionate ... but most importantly, believe in yourself and others will believe in you!