Tired of bootstrapping and ready to raise money to expand your business this year? Congratulations. That’s the first step toward achieving your dreams. Too many of us, especially women, constrain our business’ potential by scraping by on a tight budget or maxed out credit cards.
But before you dive in, it pays to get really clear on your goals and values. Your goals and values are the foundation of your capital-raising plan. Skip this step, and you run the risk of raising money in a way that will require you to sacrifice what is most important to you.
Too many company founders end up with investors who pressure them to do things they would rather not do—and sometimes even fire them from their own company. (Just google “VC horror stories”!) But taking on outside investors does not have to mean selling out.
The truth is, there are many sources of investment capital, and I can almost guarantee you that there are investors out there that are right for you. The key is to design your capital raising strategy from the very beginning to avoid future conflicts with your investors.
In my book, Raise Capital on Your Own Terms, I advise entrepreneurs to take some time to get as clear as possible about what’s important to them and their business, before they even think about approaching potential investors.
Here are some exercises to help you prepare for a successful capital-raising strategy.
What Are Your Goals and Values?
♣ How you want your employees or suppliers to be treated
♣ Quality standards for your product or service
♣ What effect you want your business to have on the environment and on the communities where it does business
♣ Your view of the importance of transparency—e.g., whether you want to share detailed information about your company with your employees, investors, and maybe even the general public
♣ How many hours per week you want to work
♣ How much vacation you want to take
♣ What salary you want to pay yourself
♣ How big and how quickly you want your company to grow
♣ How long you want to run your company
♣ What you want to have happen with your company when you’re ready to leave it
♣ How you want your company to impact the world
♣ How much control you want over major decisions
Your goals and values may change over time. But the clearer you are now about what is important to you, the easier it will be for you to make sure that your company continues to be in service to those goals and values.
Spending time on this up front is one of the best investments you can make to avoid the heartache of seeing your business being pushed in a direction that is not right for you.
Think about why you started your business in the first place. Was it to have autonomy and freedom? Was it so that you could create jobs for people in your community? Was it to create financial security for you and your loved ones? Or so that you could work no more than twenty hours per week?
Never make a decision in your business that will require you to sacrifice the whole reason you started your business in the first place. If you love having free time to pursue your hobbies, don’t bring on an investor who expects you to devote all your waking hours to the company. Don’t be one of those entrepreneurs who wakes up one day and realizes that she hates the business she has built.
Did you start your business to have an impact in the world? For example, maybe you’ve created an app that will disrupt the banking industry and make high-quality financial services affordable and accessible to everyone. Your goal is probably to reach as many customers as possible as quickly as possible. And you may be wary of selling the company to a large bank that is more concerned with maximizing profit than serving low-income customers.
Or maybe you started a fresh juice bar because you want the people in your community to be healthier and you want to support local farmers. In that case, you wouldn’t be concerned with reaching massive numbers of customers globally, but you would want to grow your customer base within your local community. And you probably wouldn’t want to compromise on your commitment to getting the freshest local produce, even if it’s not always the cheapest option.
As you raise money, make sure that the decisions you’re making in your business, including which potential investors you’re talking to, are serving your why.
Picture what your business will look like when all your dreams about it have come true. Is it a giant multinational company listed on the New York Stock Exchange? Is it a small local business that is known for giving back to the community? Is it a business that has ten employees—or ten thousand? What impact is it having on you, your family, your employees, your suppliers, your investors, the people who live near its facilities, public policy, the environment? Are you still in control, or maybe you’ve given up your controlling interest in the name of scaling your impact? Are you the CEO, involved in all the major decisions, or an advisor who holds the big vision? Or something in between?
This vision serves as a road map to help you choose the best strategy for raising money. Spend as much time as you need to search inside and find out what really lights you up. That is the business that will make you happy and that the world needs you to build!
Picture an investor walking up to you and offering a check for $1 million. What conditions would make you refuse the check? The following are examples of issues that some investors might want you to compromise on. Be very honest with yourself about which of these are non-negotiables for you.
I want to keep control; I want the freedom to do what I want with my business.
I want to pay my employees a living wage and provide good benefits.
I want to source only from suppliers that are fair-trade certified.
I want to contribute X percent of my gross revenues to Y charity.
I do not want to work more than forty hours per week so that I can spend time with my family.
I do not want to use artificial colors or flavors in my product.
I’m not recommending that you be rigid and uncompromising. But most of us have values that are so important to us that compromising on them would make it hard for us to look at ourselves in the mirror. There are investors who share your values and will be thrilled that you have committed not to compromise on them.
One of the greatest sources of misalignment between entrepreneurs and investors is the exit strategy. There is much focus on the venture capital (VC) model of investing, which assumes that a company must grow as fast as possible with the single-minded intention that it will be acquired for a high price (or go public through an IPO).
In reality, very few companies actually raise capital this way. Of the Inc. 500 fastest-growing private companies in the US, only 6.5 percent raised venture funding!
There are many ways for investors to be fairly compensated without you being forced to sell your company. My book outlines quite a few options.
Armed with this knowledge, you can focus on finding investors that are aligned with your goals—and run the business that makes you happy.
Jenny Kassan has two decades of experience as an entrepreneur and attorney. She is the founder of Jenny Kassan Consulting and the author of Raise Money On Your Own Terms: How to Fund Your Business Without Selling Your Soul (Berrett-Koehler 2017).