WHAT ENTREPRENEURS MUST HAVE WHEN WORKING WITH INVESTORS Raising Capital?
O ne of the biggest frustrations faced by entrepreneurs is lack of funding. It’s a pain point practically all entrepreneurs are familiar with. And it’s a major source of stress when you’re trying to move to the next stage of development in your business. Many entrepreneurs wonder why some investors are so unwilling to write them a check or to take a leap of faith on their product or business. On the flipside, some investors love to invest. But they invest with the intention of getting their money back and then some. If an investor wrote a check to every entrepreneur who came their way, they would have no money. It’s simple math. The relationship wouldn’t work. Investors must be prudent. Both entrepreneurs and investors have to navigate choppy waters to get to their respective destinations. It’s not easy, but entrepreneurs can take steps to gain the attention of an investor, or several investors, and get that check.
control. Their entrepreneur must have a high level of credibility, and the investor must believe the entrepreneur can deliver on their vision. While some investors enjoy risk (the general rule of thumb is high risk equals high reward), you still need trust. Most investors, however, want to mitigate their risk. Building trust is a good way to accomplish that. Of course, trust is a two-way street. The entrepreneur needs to be able to trust the investor and their intentions, too. Expectations between the two parties need to be established. What does the investor expect for their money once they write that check? It’s not too different from the relationships I have with my kids, who are 6 and 7. They love to explore and want to go out and do things, often on their own. But I don’t necessarily trust that they won’t get into trouble or get hurt. As they demonstrate their trustworthiness, I start to believe they are capable of handling themselves outside of the eyes of their dad. As they get a little older, that trust builds. When I see them play in the park, interact with other kids, or behave in public, I can gauge what they can handle. Eventually, I will let them go to the park on their own. For now, that’s not happening. We take baby steps. Investors also want to take baby steps. There’s a “crawl, walk, run” mentality that comes with doling out capital. As the entrepreneur builds their case, the investor might dole out a little cash. As the case builds — and confidence along with it — more
investors might come on board and bring more money along with them.
How do you start building trust and credibility? Entrepreneurs can relate to investors by telling their stories. Many investors are genuinely interested in the journey of the entrepreneur. Don’t be afraid to tell that story and talk about why you’re the right person to solve a specific problem. Build your expertise. Be relatable. Be personal. Another way to do this is to go out and build your experience and expertise by working with advisors and other experts in your industry. It’s possible to borrow credibility and to bring others on board who can help you build trust. You never have to do it on your own. Coming back to my kids, they’ve figured out how to build trust using the “expertise” of others. While I’m not about to let them walk to the park by themselves, they can tell me the babysitter is willing to take them to the park. Now, it’s a different story. They borrow the babysitter’s credibility, and it works out for them. They get to go to the park, and I don’t have to worry.
It all starts with one word: trust.
It’s easy to forget about trust when you’re so focused on building a business and getting it off the ground. You have all of these ideas you want to see come to fruition, but without trust, implementing your ideas is going to be nearly impossible. The funding won’t be there.
To raise capital, any given entrepreneur must convince any given investor that risk is under
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