How to Raise Money for Your Startup

So, you have a growing business and you’ve reached the point where you need to raise money for your startup. What’s the best way to go about it?

Business jargon is full of hunting metaphors. This is particularly true with anything related to the sales profession. Phrases like, “I’m going elephant hunting” or “let’s land the big fish” reverberate through the maze of cubicles.

Firearm metaphors aren’t far behind. We “bite the bullet” to reduce expenses. We pray for the “silver bullet” to bring down the elephant we’re hunting.

Bizarrely, one metaphor endures above all others. That expression is taking the “shotgun” approach.

It’s bizarre that it persists because it flat out doesn’t work. It’s a colossal waste of time and energy. This is particularly the case as it relates to finding investors for a business.

Here’s why:

Thinking that all investors are equal (because they all have money) is like thinking all employers are equal (because they all hire). But, if you’ve just  earned a degree in computer graphics you stand a better chance of getting that animation job at Disney than you do at Applebees. So, you target Disney and similar companies because you figure it would be a waste of time to send your resume to every company you can think of.

And you’d be right.

Yet, many entrepreneurs continue to take the shotgun approach to fundraising. Instead of developing a strategy to engage the right investors, they spray and pray their slide decks to anyone willing to listen.

I describe how to find the right investors in the SmartMoney Playbook. It’s free, and you can grab it here.

And, that’s a big mistake for three big reasons.

First, it wastes the CEO’s time. Second, the CEO diverts her attention from the business to spend time with unqualified investors. Invariably, the business suffers. Finally, even if the CEO succeeds in raising money, she likely loses in the long run. Why? Because she didn’t target a “smart” money investor.

A smart money investor is one who brings much more than cash to the deal. It’s an investor with deep knowledge of the specific industry, along with valuable contacts. Contacts that can help the company become acquired, or raise money later from Tier-1 venture capital firms. Firms with their own valuable contacts and experience facilitating exit events.

I had the opportunity recently to discuss this issue with well-known angel investor, David Chang. Take a few minutes to hear his thoughts on the value of targeting specific investors.

The first step to raising money from the right investors is to build a target investor list. I describe how to do that here.

I’d love to hear your thoughts. How would you approach targeting investors?